NEAM Insights

While Bob Dylan wrote these lyrics over 50 years ago, they seem to describe well the political climate of today. At a minimum, there is certainly a lot of window shaking and wall rattling going on. As we enter 2017, change is in the air. The new administration has plans to enact significant policy change in a number of areas. The capital markets are in the process of digesting and discounting these changes and we need to consider their impact on our interest rate outlook and fixed income strategy for the year. Read More

Back in the early 2000’s we began speaking with our insurance company clients about the potential benefits of membership in the Federal Home Loan Bank System. We immediately identified this program as a relatively inexpensive source of liquidity which could be particularly useful at times of capital market volatility when execution costs would be abnormally high. In addition, the low cost (collateralized) borrowing could provide opportunities to augment investment income for those insurance company clients who were interested in utilizing modest leverage to potentially improve investment income and ROE. Read More

As our regular readers know, NEAM utilizes its proprietary return projection methodology to establish an annual forecast for fixed income returns within the U.S. P&C insurance industry. As part of this process, we also create a distribution of possible outcomes which is used to estimate the probability of a negative total return. While 2016 exhibited roller coaster-like characteristics, our estimates proved reasonably accurate. Read More

The S&P 500 returned just shy of 12% for 2016, a feat hardly conceivable in early February after the market had fallen over 11% on global growth and deflationary undertones. From this low point, the market staged a remarkable comeback in the face of several notable surprises, specifically Brexit and the election of Donald Trump as the 45th President of the United States. By their very nature, surprises defy consensus views which, in these cases, dismissed any substantial probability of these scenarios occurring. However, rising populism, essentially the mobilization of an alienated element of the population, characterized these election outcomes. 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

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

A Global Problem It’s no secret that developed nations around the world are collectively wrestling with the unenviable dilemma of aging populations, rising entitlement costs, and paltry economic growth. Amidst this, government pensions have come under increased focus as central banks around the world suppress interest rates. Read More

Throughout the majority of 3Q 2016, the U.S. equity markets were characterized by a surreal calmness as they generally traded within a very narrow price and volatility band, akin to a placid lake as the summer sun rises over the horizon. Summertime is characteristically quieter in the financial markets, but this level of tranquility was notable. Read More

Background On September 16, 2008 the investment industry saw the first retail money market fund “break the buck.” The Reserve Primary Fund held $785 million of Lehman Brothers Commercial Paper that was rendered worthless when Lehman filed for bankruptcy. Even though the holdings represented less than 1.5% of the fund, investors worried that other commercial paper issuers held within the fund might suffer the same fate. Read More