NEAM Insights

In spite of a 6% decline in overall premiums and deposits, the reported net income for the life industry dropped only marginally in 2016, due to favorable lower reinsurance allowances and negative transfers to separate accounts. Consequently, the industry reported a slightly lower double-digit return on equity while increasing its capital and surplus. Read More

Multiline insurers providing a broad mix of insurance policies benefit from natural diversification across their insurance risk portfolio. Underwriting margins and losses from one product line are unlikely to be exactly the same for another; however, these variables may still trend in similar directions. Changes in premiums, exposure rates and loss ratio projections reflect these relationships. However, estimating these relationships is as much art as science as history shows that dependency structures are not stable. Moreover, as investment choices are made, insurers are mindful of the liability profile and cash flow sensitivity considerations inherent in their underwriting operations. Read More

There are several key takeaways based on our review: Industry combined ratio increased to 100.7, 3.5 percentage points higher than the prior three-year average, as premium rose 2.7% Net investment declined 2.9% to $47.4 billion, as invested assets increased 3.7% to $1,587.4 billion Fixed income yields declined, while duration increased and credit quality lessened Below investment grade fixed income, equities and BA assets increased 2.1 percentage points to 77.6% of statutory capital and surplus Statutory capital rose 3.6% to $712.5 billion, reflecting net income and unrealized gains exceeding capital withdrawals In periods when underwriting and capital markets are evolving, we believe an Enterprise Based Asset Allocation™ is particularly necessary to manage enterprise risk and capital management needs Read More

Bond yields remain challenged in the major currencies and investors continue to face low yields across sectors in the investment grade universe. Few markets are impacted as severely as the European bond market where short-term underlying rates remain negative, slowly eroding earnings and almost guaranteeing a negative return. With this in mind the search for higher yielding (and positive) paper remains strong with many euro-denominated insurers considering non-traditional sectors such as high yield debt and others content to take exposure in a foreign currency. Read More

Impact on Portfolio Optimization? The National Association of Insurance Commissioners (NAIC) presented a proposal of new risk-based capital (RBC) charges for C1 investment risk in 2015. This proposal also introduced additional granularity of fixed income credit rating reporting, from six to twenty categories. Although the current proposal focuses on life insurers, NAIC has stated that the proposed structure of twenty rating categories would also apply to health, and property and casualty insurers. The numeric values of the respective C1 factors might vary by industry segments. Read More

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