NEAM Insights

Executive Summary This issue of Perspectives will explore the risk and return profile of the U.S. property and casualty (P&C) industry and assess ways this has evolved over time. One mandate of insurance company leadership is to utilize the firm’s risk capacity effectively and ensure that it is aligned with the risk preferences of stakeholders. Part of this effectiveness depends on understanding drivers of a specific company’s return and risk, and how this compares to competitors and the broader industry. Read More

As news of the Omicron variant spread the day after Thanksgiving 2021, it was hard not to have flashbacks to the 1993 Bill Murray movie Groundhog Day. “This can’t be happening again,” was a popular phrase heard throughout the world. As disappointing as it is to see another highly contagious Covid variant emerge, it does set the stage for what could become the norm in 2022. The (hopeful) transition from pandemic to endemic in 2022 may coincide with a series of rolling Covid variant outbreaks. With that in mind, how does one position investment portfolios for insurance companies when the next round of volatility and uncertainty could be right around the corner? Are there portfolio strategies in a Covid world that historically would not be inflected in insurance company portfolios? First, let’s take a quick look at our economic outlook for 2022. Read More

Green, social, and sustainable bonds – collectively known as ESG labeled bonds – specify that an amount equal to the bond proceeds will be invested in environmentally responsible initiatives, socially conscious projects, or, for sustainable bonds, a combination of both. For the investor inclined towards sustainability, the growth in ESG labeled debt outstanding, as discussed in a previous Quick Takes ("ESG Labeled Bonds: A Very Fashionable 'Label,'" 2021), may seem like a great opportunity. However, investors must look beyond the ESG label since that label is not a guarantee that a bond will meet one’s ESG expectations. Read More

Rapid Growth ESG has taken the investment world by storm. One of the elements of this new emphasis on “sustainable” investing has been the rapid development and expansion of ESG labeled bonds. Though bonds associated with environmental themes have been around for almost two decades, issuance in ESG labeled bonds has skyrocketed in the last few years, especially for the newer label types. Read More

The UN’s recent landmark climate report explains that “Climate change is already affecting every inhabited region across the globe with human influence contributing to many observed changes in weather and climate extremes.”1 McKinsey Global Institute goes on to note “As average temperatures rise, climate science finds that acute hazards such as heat waves and floods grow in frequency and severity, and chronic hazards, such as drought and rising sea levels, intensify.”2 Read More

The need for investment income has never been more important or relevant for insurers than in today’s capital market environment, where reinvestment rates continue to be constrained by low rates and an abundance of liquidity keeping credit spreads tight. Portions of the insurance industry have recently experienced pricing improvements which have helped alleviate operating results for certain underperforming lines of business. Despite these near and medium-term underwriting gains, we believe that investment income will continue to be a critical factor in an insurance company’s overall operating performance. Read More

The wait is finally over. After prolonged deliberations, the National Association of Insurance Commissioners (NAIC) adopted new Risk-Based Capital (RBC) C1 investment risk charges in June 2021. These factors are being implemented for year-end 2021 filings for life insurers. For property and casualty as well as health insurers, their current RBC investment factors continue to apply until further guidance from the NAIC. Read More

No Bright Lines Since the financial crisis in 2008/2009, the lines between Central Banks and elected political officials have become increasingly blurred. The issuance of trillions of dollar, euro and yen denominated debt, much of which has been absorbed by Central Bank (CB) balance sheets, has brought the question of CB independence into bold relief. In this article, we briefly discuss the current “joined at the hip” nature of central banks, fiscal authorities and elected officials by citing a few prominent examples. Read More

Executive Summary The U.S. P&C insurance industry strengthened its liquidity as companies navigated underwriting uncertainties amid the global pandemic crisis in 2020. Bolstered liquidity and low reinvestment yield led the industry to experience the largest annual decline of book yield in the past 10 years. Read More

Executive Summary The U.S. life insurance industry strengthened its liquidity amid the pandemic uncertainty. The broad sector allocations remained stable, with bonds and mortgage loans combined representing 83% of the total invested assets. Allocations to alternative (Schedule BA) assets continued to trend upward, but are predominately owned by large organizations. Read More