NEAM Insights

LDTI comes live in 2023 Starting in 2023, U.S. public life insurers are expected to adopt Accounting Standard Update (ASU) 2018-12, the updated GAAP accounting rules for long-duration contracts. Among various changes required by this accounting update, standardizing the discount rates in long-duration contracts reserving could have implications (or unintended consequences) as life insurers attempt to manage, or mitigate, the reported earnings or book value volatility under this new accounting rule. This issue of Perspectives focuses on how liability discounting could influence life insurers’ enterprise optimization and investment strategy. Life Insurers are expected to navigate accounting, regulatory and rating agencies’ requirements and economic realities when evaluating and optimizing their enterprise values. Sometimes these are not aligned, or even conflicting, and insurers need to understand the trade-offs and choose measures that are most appropriate for their operational needs and stakeholder expectations. 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

Executive Summary The U.S. life insurance industry strengthened its liquidity as companies navigated the pandemic crisis and business uncertainties over the last two years. Broad sector allocations remained stable, with bonds and mortgage loans combined representing 83% of total invested assets. In 2021, the industry’s annual net investment income (%) increased marginally, largely driven by alternative assets, which tend to be predominately owned by large organizations. Read More

Nuclear Power in the U.S. Green sources of electric power such as wind and solar are appealing as they emit minimal pollution and carbon while producing power. The wind does not blow constantly, however, nor is the sun out around the clock and electric storage technology has not advanced to the point of capturing energy from any source sufficient to power an entire electrical grid. Other forms of energy that run almost continuously – such as nuclear power1 – are required to fill any gaps in production of electricity from the wind or the sun. What is the state of nuclear electricity generation in the U.S.? Unfortunately, after a strong pace of nuclear power plant construction in the 1970s – 1990s2, the country lost enthusiasm for building new facilities. Construction was expensive, approvals increasingly difficult to obtain and publicity surrounding the relatively few nuclear facility accidents discouraged development.3 The nuclear share of electricity generation in the U.S. rose from 2% in 1971 to around 20% in 1991, where it has remained. In comparison, wind’s share is 9% and solar’s is 3%.4 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