NEAM Insights

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

Executive Summary Property and casualty (P&C) insurers often focus on three areas of their invested assets: sector, credit and duration. The latter two focus on fixed income, but all areas are connected to a certain extent. Of course, other portfolio characteristics1 play a role as well. However, when we look closer at sector, particularly eligible asset classes, there is a common theme with most P&C companies. In recent years, about 75% to 80% of their holdings were with investment grade core fixed income, including a notable amount of cash and high quality, short duration assets.2 The remaining 20% to 25%3 were with risk assets, led by common stocks. Apparently, these insurers take a “barbell” approach to investing – higher risk positions like equities are offset with relatively lower risk positions like short duration, highly liquid bonds. The result may be an aggregate portfolio volatility risk that is acceptable, but not necessarily balanced across a risk spectrum. This binary view of very high versus very low risk assets may overlook a broader and richer range of complementary opportunities. Moreover, these opportunities are within the low-to-high risk ranges of the barbell, achieve similar portfolio and enterprise risk profile estimates, and increase overall return expectations. In this issue of Perspectives, we will explore the implications of this barbell sector risk-taking approach versus a more comprehensive one that includes a broader range of investment opportunities. Read More

Executive Summary The U.S. life insurance industry broad sector allocations remained stable, with bonds and mortgage loans combined representing 85% of the allocation. Allocations to alternative (Schedule BA) assets reached a new high in 2019, but are predominately owned by large organizations. Read More

EXECUTIVE SUMMARY The U.S. P&C insurance industry continued to experience declines in investment returns. The recent pandemic crisis and Central Bank actions have created an even more demanding environment for P&C insurers to navigate underwriting uncertainties and investing challenges. Read More

Executive Summary The Property & Casualty (P&C) insurance industry is arguably in the most uncertain position in recent memory. Seldom has the industry been faced with such fundamental challenges – ranging from a remote workforce and legislative and legal actions to weakened near-term demand. Read More

Executive Summary This issue of Perspectives discusses implications of investment choices as non-life insurers in the U.S. consider different measures of return and risk. Traditional accounting measures of investment performance such as yield and price return are generally intuitive, but alone may not provide a complete understanding of the risk and return characteristics of a portfolio. Read More

We choose the topic of Goodwill for this Perspectives for several reasons. First, for insurance organizations which are Generally Accepted Accounting Principle (GAAP) filers it represents a component of reported equity. Second, the Coronavirus-19 and recent capital market volatility will adversely impact insurers’ GAAP and statutory operating results and capital positions. And third, the Financial Accounting Standards Board (FASB) comment period on the current goodwill accounting framework has expired and results are pending. Read More

In this Perspectives, we explore the realignment of insurance product portfolios and the asymmetric behavior of asset returns and property/casualty underwriting margins on both asset allocation and enterprise outcomes. We find realigning insurance product portfolios can favorably impact enterprise results. Further, product realignment can enhance the earnings contribution of asset reallocation. Read More

Introduction In this Perspectives, we explore the utilization of asset allocation and reinsurance to achieve enterprise de-risking. We find asset reallocation combined with reinsurance to be the most effective means to manage an insurer’s return/risk profile following a more holistic enterprise-based framework. We believe there are few true caveats to the findings; however, several admonitions are offered impacting applications to individual companies. Read More