NEAM Insights

Deficits Don’t Matter…Until They Do The topic of deficit spending has long been debated. Rooted in Keynesian economics, the theory holds that governments should stimulate the economy by borrowing and spending during an economic downturn, and then reverse once the crisis has passed. But contrary to Keynes' theory, deficits in the U.S. have persisted even during thriving economies. Following the 1981-1982 downturn, the Reagan administration experimented with “trickle down” economics, a supply side approach suggesting lower taxes on higher income earners would encourage more economic growth and investment that would benefit the entire nation. Indeed, U.S. GDP took off as the highest marginal income tax rate was cut from 70% to 30% alongside other tax cuts. The economy went on to grow at an impressive 26% over the 8 years of Reagan’s presidency, along with ballooning deficits that continued throughout the decade. Read More

Solvency UK The Solvency II regulatory regime came into force across the European Union ("EU") on 1 January 2016. Following the UK’s exiting from the EU, the UK Government announced a review of the Solvency II framework and launched consultations in April 2022. It followed up with final proposals on 17 November 2022 and revealed draft legislation on 20 June 2023. The Prudential Regulation Authority (“PRA”) followed up with a consultation on technical details on 29 June 2023. Read More

How have we got here? Over the last 25 years, Europe has taken the global lead in energy transition in terms of lower fossil fuel extraction within its borders. This was achieved by a reduction in sourcing via natural gas fields in the Netherlands and coal in Eastern Europe while increasing the footprint of renewable energy sources such as wind and solar. Read More

Having rebounded from the depths of the pandemic crisis, the global economy faces a critical juncture as it battles to overcome stubborn inflation and revert to more normalized monetary conditions. The commodities complex has been thrown into flux with the war in Ukraine, imperiling regions in close proximity. The challenges are well known, even if the outcomes are uncertain. As we broaden our view to emerging economies, vulnerabilities are surfacing because of inflation and currency depreciation made worse by a strong U.S. dollar. Meanwhile, China faces a financial crisis brought on by a highly leveraged, multi-decade, real estate and infrastructure-fueled growth agenda. The potential for spillover to the broader global economy depends on the extent and breadth of the pain. Read More

2021 IN REVIEW 2021 proved to be a year of mixed fortunes in financial markets. U.S. stocks had another banner year with the S&P 500 returning 28.7%. This completes the hat trick which saw equity returns in double digit territory for three years in a row. It wasn’t merely double digits though. The annualized return for the S&P 500 was over 26% for the three years ended December 31, 2021. Sustained returns at this level are extremely unusual (see Chart 1). 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

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

In December of 2020 Lloyd’s published its “Environmental, Social and Governance (“ESG”) Report 2020.” Referencing the report, Lloyd’s Chairman Bruce Carnegie-Brown states “This is the first time we have set an ESG strategy for the Lloyd’s market and it represents an important milestone on the journey towards building a more sustainable future.” The report covers both underwriting and investment activity, but in this Quick Takes we will focus on the potential impact of this shift to responsible investing on Lloyd’s investment portfolios. Read More

The Backdrop The U.S. municipal bond market is benefitting from a confluence of positive factors, not the least of which is a supportive Federal government. Recent and proposed legislation is helping drive record demand for municipal bonds. From stimulus measures to proposed tax increases and infrastructure support, the stars have seemingly aligned for the municipal market. We will discuss the latest developments and the effects on municipal credit, technicals, and valuations. Read More

The Fed and Inflation In 1979, annual inflation rates were north of 10% and rising when Paul Volcker, then Chairman of the Federal Reserve Board, took action to attack the problem. On the heels of an unscheduled Federal Open Market Committee meeting, Volcker announced a change in Federal Reserve policy designed to rein in inflation. By early 1980, the Fed Funds rate peaked at a record high of 20% and inflation crested at just under 15%. This series of Fed actions confirmed the Fed’s independence, firmly established its inflation fighting credentials and ushered in an era of low and stable inflation rates. Read More