NEAM Insights

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

Rumor is that taxes might fall and interest rates might rise further, leading one to ask, “Now, what do I do?” We advise: that depends on you, how your current portfolio is constructed and your definition of success. In this Perspectives, we assess the potential impact of a decline in corporate tax rates and rising interest rates on asset allocation and earned investment income, relying on industry aggregates as a representative company proxy. Read More

In this issue of Perspectives, we review trends of the Schedule BA investments of the U.S. insurance industry and compare those investments across the Property/Casualty, Life, and Health segments. Read More

The focus of this issue of Perspectives is to determine whether these regimes, each with different standards and capital adequacy metrics, develop different relative investment capital charges when applied to individual insurers.1 For example, when contrasting the 10 or 25 most (or least) intense capital consumers, are they the same organizations or are they ranked differently across regimes? Read More

While the earned rates for life insurers are relatively straight forward, the paid or credited rates may warrant further discussion. Life insurers are subject to minimum interest rate guarantees, both explicitly and implicitly, for long-term insurance contracts. Read More

Our recent Perspectives focused on 2015 property/casualty insurers’ investment highlights and led us to reach the following conclusion: It is to an insurer’s advantage to adopt an enterprise capital management approach to optimizing asset allocation which encompasses a more complete integration with enterprise risk appetite and tolerances, a comprehensive vetting of investment guidelines and consideration of capital structure and management. Read More

In this issue of Perspectives, we review statutory operating and investment results for the U.S. life insurance industry over the last decade. Portfolio details focus on fixed income sector trends and market statistics (durations, yields and NRSRO ratings), which are maintained by NEAM in a proprietary database and are not publicly available. Read More

Life insurers traditionally follow an asset liability matching or management (ALM) approach to construct their investment portfolios. This ALM framework is a bottom-up process in which assets are segmented to support specific product liabilities. This issue of Perspectives introduces a top-down asset allocation approach (Enterprise Based Asset Allocation™ or EBAA™process) and illustrates how life insurers can adopt this holistic approach to potentially improve their investment portfolios’ risk-adjusted returns beyond the levels derived from the traditional bottom-up ALM approach. Read More

The U.S. property and casualty insurance industry book yields are at the lowest levels since the early 1950s, reflecting a continuation of record low capital market opportunities. And they are poised for still greater declines. Allocations to risk assets are at their highest levels in recent memory;1 and premium and investment leverage are at their lowest levels since the 1930s. Combined ratios, while fluctuating in a narrow breakeven range, are the beneficiaries of benign catastrophe losses and favorable reserve development. Read More

The topic of correlation is widely discussed when capital markets roil, as we have experienced recently and during the financial crisis of the last decade. Rating agency models assume correlations between interest rate, credit and equity market risk factors. Regulators reference correlations in their ORSA (Own Risk Solvency Assessment) and solvency bulletins. Insurers’ internal capital models also rely on correlation estimates to determine expected outcomes and copulas for “tail” events.1 Correlation is also embedded within nearly all asset allocation and optimization methods. Read More