NEAM Insights

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

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

As insurers grapple with the development of an Environmental Social & Governance “ESG” strategy that aligns with company values, long-term business objectives and fast evolving public perceptions, UK regulators have been providing direction in the area of Climate Change Risk. 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