NEAM Insights

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

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 2008 financial crisis caused a severe contraction in the U.S. housing sector. It led to significant tightening of underwriting standards, forcing many potential first-time homebuyers to postpone their home purchase decisions. Through a combination of unprecedented economic stimulus by the Fed, modifications of unaffordable loans and the clearing of distressed inventory through foreclosures, home prices finally stopped their decline in 2012. Subsequently, an extended period of low mortgage rates brought back borrower demand and robust underwriting restored investor confidence, resulting in steadily increasing housing activity. This positive momentum continued into 2020, with the COVID-19 pandemic sharply accelerating demand. The U.S. housing market has now surpassed its pre-financial crisis activity and price levels, leading some to speculate that a housing bubble could be forming, but we disagree. Read More

The last year has been a challenge for energy markets with a global oversupply in crude oil exacerbated by a pandemic-induced drop in overall energy demand. Additionally, from a longer-term perspective, industry trends away from using traditional sources of fuel have been accelerating. Over the past few years, investment managers have become increasingly focused on environmental, social and governance factors (ESG) when looking to put money to work. Further, concerns over climate, sustainability of resources as well as pollution have encouraged energy-producing countries and companies to actively seek to change how power is accessed, supplied, distributed and ultimately used with the idea of limiting or eliminating negative effects on the environment. Below we discuss some developments that could change the business of energy over the coming decades. 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

Executive Summary To understand how life insurers have fared through this prolonged low yield environment, we have published a series of studies1 that review the life industry’s net investment spreads. Principally, these spreads are the difference between “earned” rates from assets versus “paid/credited” rates to insurance contracts.2 Read More

Slightly over a year ago in early 2020, the United States was in a good place economically. The economy was coming off a year in which real GDP grew 2.3% and the unemployment rate was at a historical low of 3.5%. The economy was poised for another strong year and President Trump was confident that he had Made America Great Again. And then the world came to a halt. The Covid virus hit the shores of America and the U.S. economy went into lockdown. As had been the playbook in the Great Financial Crisis of 2008, the Federal Reserve stepped in, dropped rates to zero and unleashed a series of monetary support programs the magnitude of which we have never seen before. Read More

Election Surprises After the contentious 2020 presidential election and its aftermath, the loss of both Republican Senate seats in Georgia proved a surprise. Just a few weeks earlier, the assumption was that Congress would be divided and that any sweeping legislative changes were unlikely. That presumption changed with the Republican loss of those two seats. President Biden has indicated that he would like to re-establish a bi-partisan legislative process. While we hope he is successful, bipartisan cooperation would be a tall order at this moment. Read More

In short, 2020 proved to be an intense and surreal year. The world faced a global pandemic which infected nearly 82 million people and led to 1.8 million associated fatalities at last count.1 Global economic activity fell by nearly 20% by April, and the U.S. economy experienced its fastest and deepest recession in post war history. The level of economic disruption induced by the pandemic necessitated a massive and swift policy response, the magnitude of which more than fully offset the sacrificed income and goosed the U.S. savings rate to a record 34%. This liquidity stabilized risk asset prices and enabled the 2020 stock market to rally off the lows to be the greatest of all time, further fueled by the reopening of the economy and successful development of compellingly effective vaccines.2 Read More