NEAM Insights

Insurance executives know it’s axiomatic that underwriting results are volatile, reflecting fortuitous events, competitive practices and even misjudgments. Although premium income has recovered from immediate post-financial crisis contractions, underwriting margins once again have turned negative. When combined with low investment income, the industry has netted low single digit returns on equity – potentially less than the cost of capital for some insurance companies. While there are underwriting market leaders, even those that outperform face challenges to their investment operations similar to other industry participants. Read More

FINANCIAL HIGHLIGHTS Recent History and Trends Recent premium growth for the property and casualty insurance industry has been hovering at 4% as the underwriting margin continues to show volatility and returned to unprofitable levels. Read More

In October 2017, AM Best released their new Best’s Capital Adequacy Ratio (BCAR) methodology that assesses the capital adequacy of the property/casualty and life/health insurers in North America. Read More

Recently, we explored how tax changes have influenced the attractiveness of tax-preferenced investments and the impact of accounting regimes and taxes on rating agency and regulatory solvency assessments.1 This Perspectives addresses the impact of these tax changes on risk tolerances and asset allocation when taxes are explicitly considered in the decision process. Read More

Regulatory and rating agency solvency assessment methods are evolving. A.M. Best is deploying its new capital adequacy model. NAIC Own Risk and Solvency Assessment (ORSA) regulatory documents are being filed by insurers. And, modifications to Solvency II requirements and the adoption of International Financial Reporting Standards (IFRS) are underway. Read More

In spite of a 6% decline in overall premiums and deposits, the reported net income for the life industry dropped only marginally in 2016, due to favorable lower reinsurance allowances and negative transfers to separate accounts. Consequently, the industry reported a slightly lower double-digit return on equity while increasing its capital and surplus. Read More

Multiline insurers providing a broad mix of insurance policies benefit from natural diversification across their insurance risk portfolio. Underwriting margins and losses from one product line are unlikely to be exactly the same for another; however, these variables may still trend in similar directions. Changes in premiums, exposure rates and loss ratio projections reflect these relationships. However, estimating these relationships is as much art as science as history shows that dependency structures are not stable. Moreover, as investment choices are made, insurers are mindful of the liability profile and cash flow sensitivity considerations inherent in their underwriting operations. Read More

There are several key takeaways based on our review: Industry combined ratio increased to 100.7, 3.5 percentage points higher than the prior three-year average, as premium rose 2.7% Net investment declined 2.9% to $47.4 billion, as invested assets increased 3.7% to $1,587.4 billion Fixed income yields declined, while duration increased and credit quality lessened Below investment grade fixed income, equities and BA assets increased 2.1 percentage points to 77.6% of statutory capital and surplus Statutory capital rose 3.6% to $712.5 billion, reflecting net income and unrealized gains exceeding capital withdrawals In periods when underwriting and capital markets are evolving, we believe an Enterprise Based Asset Allocation™ is particularly necessary to manage enterprise risk and capital management needs Read More

Impact on Portfolio Optimization? The National Association of Insurance Commissioners (NAIC) presented a proposal of new risk-based capital (RBC) charges for C1 investment risk in 2015. This proposal also introduced additional granularity of fixed income credit rating reporting, from six to twenty categories. Although the current proposal focuses on life insurers, NAIC has stated that the proposed structure of twenty rating categories would also apply to health, and property and casualty insurers. The numeric values of the respective C1 factors might vary by industry segments. Read More

Many articles discuss enterprise risk management (ERM) and provide compelling reasons to establish and measure risk preferences. Some say that an effective and prudent enterprise risk and capital management process requires a well-articulated risk appetite framework. But, how does one define what that risk appetite should be? Read More