Thought Leadership


Yield Curve Inversion: Are We There Yet?

Western Asset

This paper is a good primer on yield curve history and theory, and a take on where we are now. The yield curve inversions that have preceded every recession of the last 50 years were cases where the yield curve clearly looked inverted. Not just were 10-year yields below T-bill yields, but almost every longer-maturity yield was below almost every yield of shorter maturity.


Factor-based Sustainable Multi-asset Solutions for Insurers

Robeco

Multi-asset products may be popular, particularly among insurers. But low yields and an increasingly stringent regulatory environment are posing challenges. Factor-based solutions that efficiently integrate sustainability criteria are a natural solution to address the challenges insurers face.


Capital Market Line: The Threat of Split Supply Chains

PineBridge Investments

This paper compares the current expected risk/return characteristics of various asset categories with consideration of current influencing factors.


Guide to Alternatives

J.P. Morgan Asset Management

An objective comprehensive analysis of the key themes impacting alternatives asset classes.


Life Insurance CLO Allocations

J.P. Morgan Asset Management

Since the financial crisis, for a relatively liquid investment CLOs consistently have had the highest spreads net of capital costs for US life insurers. Most large life insurers built up allocations to CLOs of 3%-5% of total assets, starting around 2013. However looking at changes in total industry level holdings obscures widely divergent behavior in CLO investments among individual life insurers.


An Insurers’ Guide to Below-Investment Grade Exposure: The Platform Approach

Neuberger Berman

Insurance companies have been broadening their below-investment grade allocations to include loans and tranches of collateralized debt obligations (CLOs) alongside high yield bonds. This paper argues that the advantages of a broader credit universe are realized only when investors take a “platform” approach, breaking down the silos and considering all asset classes, regions, currencies and access routes through the same fundamental lens, unconstrained by traditional market index benchmarks.


Fixed Income as a Commodity - Debunking the Myth

AAM

Is core fixed income strategy a commodity? This paper examines a universe of institutional core fixed income managers with comparable objectives and characteristics. Differences in long-term performance are evaluated gross of fees and factors that contribute to differences in performance are evaluated.


Building Connections

Insurance Women's Investment Network

The Exchange is pleased to promote this forum for experienced female professionals focused on investment of insurance general account assets. Industry leaders gather in a marketplace of ideas to share their knowledge and insights.


Adopting a Holistic Enterprise Approach to Life Insurer Portfolio Optimization

New England Asset Management

Life insurers traditionally follow a bottom-up asset liability matching approach to construct their investment portfolios. Do you know the benefits of taking a top-down enterprise approach?


Enabling Insurers to Achieve Capital-efficient Returns

Robeco

The majority of assets owned by insurers are invested in investment grade fixed income. In search of a way to achieve more capital-efficient returns, diversification and illiquidity premiums, insurers often turn to high yield markets and alternative asset classes. But we argue factor investing in corporate bonds is an attractive alternative approach to generating capital-efficient returns.


2019 GSAM Insurance Survey

Goldman Sachs Asset Management

Slowing global growth and the reintroduction of market volatility set the backdrop for this year’s GSAM Insurance Asset Management Survey, which reveals heightened credit cycle concerns, significant shifts in perceived risks and capped expectations for returns. This year’s title, Cautiously Opportunistic, underscores insurers’ approach to selectively taking risk in light of this view. The eighth annual survey released by GSAM Insurance Asset Management incorporates the views of 307 Chief Investment Officers (CIOs) and Chief Financial Officers (CFOs) representing over $13 trillion in global balance sheet assets, which accounts for approximately half of the global insurance industry.


Convertibles: A Flexible Asset for Insurance Portfolios

Conning

Rising market interest rates have piqued curiosity in convertible securities, but many insurers do not fully understand how convertibles work or what they can add to a portfolio. The fact that they can be converted into the issuer’s equity speaks to their value proposition: possible equity upside with a bond’s downside protection.


Fixed Income Investing for a Climate-Resilient World

Wells Fargo Asset Management

Round table discussion with WFAM's fixed income leaders to consider ramifications of climate change and the investment opportunities arising within their investment team's strategies.


Insurance Asset Management: Key Themes and Trends for 2019

Wellington Management

Our insurance-industry strategist highlights the major forces he sees shaping insurers’ investment portfolios. The thoughts that follow are intended to complement the slew of investment outlook pieces published at this time of year, understanding that the capital markets are only one piece of the insurance asset-management mosaic. Although many of the points raised here are based on US industry data, our conversations with some non-US clients indicate they tend to apply globally.


Kissing Cousins: What’s Ahead for Leveraged Loans and CLOs?

New England Asset Management

Recent trends in leveraged loans and CLOs have raised eyebrows. What’s in store for these closely related sectors and how should they be regarded in insurers’ portfolios?


Diversifying into Insurance Risk Premia

Neuberger Berman

This paper describes the characteristics of Insurance-linked Securities (ILS) and their usefulness to institutional investors. We show that adding a particular type of ILS, Industry Loss Warranties (ILWs), to typical endowment, pension and insurance portfolios would have led to an improvement in risk-adjusted returns and resilience to tail market scenarios, while conforming to the usual constraints and regulatory requirements faced by these investors.


The Future of Fixed Income

Alliance Bernstein

A wide gulf in performance is about to open between those managers who have fully integrated technology into their investment processes and those who have not.


CLOs: Still a Preferred Asset Class, But Time to Move Up in Quality

Wellington Management

It’s no secret that bank loan underwriting standards have loosened. In addition, CLOs – a primary source of demand for bank loans – are experiencing some softening in deal terms, often dipping into lower-quality collateral to make the arbitrage attractive. While these changes are not yet sounding alarm bells, click below to read more on our view of bank loans and CLOs.


Credit Strategies for the End of the Cycle

Voya

Understanding the differences between the current market environment and dynamics leading up to the 2008 crisis can help investors more effectively prepare their portfolios for the next phase in the cycle.


BlackRock Global Insurance Report 2018

BlackRock

Now in its seventh edition, the 2018 BlackRock Global Insurance Report summarises the key findings gained from surveying 372 senior executives in the insurance and reinsurance industry across 27 countries. As well as assessing trends in investor sentiment and the outlook for investment strategy, the report explores how insurers increasingly take into account environmental, social and governance (ESG) considerations.


Single Security Initiative for Agency Mortgage-Backed Securities

New England Asset Management

The Uniform Mortgage-Backed Security will be introduced next year. What do investors need to know and will the market be ready in time to ensure a successful transition?


Introduction to Investment Grade Private Credit

Voya Investment Management

This paper examines the "private credit" asset class, explains its characteristics, and explores some of the advantages and risks of investing in private credit.


Private real estate debt: A range of yield opportunity for insurance companies

DWS

The search for higher yielding investments secured by quality collateral and a desire for diversification has spurred insurance companies to explore alternative investing options such as private commercial real estate debt, including subordinate debt like mezzanine loans. We currently believe CRE debt can benefit from strong underlying commercial real estate fundamentals, continued favorable economic growth, strong borrower demand, and a diversified choice of strategies across the capital stack which may offer attractive risk-adjusted returns.


RBC Update

AAM

The NAIC Investment Risk-Based Capital Working Group continues to progress on its project to update the factors applied to bonds in the risk-based capital formula. This will most likely increase the number of bond rating buckets from 6 to 20. The impacts...


EM Debt for Insurers

AllianceBernstein

Emerging-market (EM) debt's strong returns over the past two years have attracted significant flows. While recent volatility has tempered that broad enthusiasm, investors interested in a strategic EM allocation are still actively exploring the space. However, to properly evaluate EM opportunities, it is important for insurers to consider the cost of capital as well as the risks.


Seeking Long-Term After-Tax Growth for Insurers’ Surplus Capital

Wellington Management

Over many years of investing surplus assets on behalf of insurance clients, we think the need for a solution to address both the governance and investment challenges of overseeing such assets has become increasingly apparent. This paper describes Surplus Equity Solutions (SES), a holistic approach for the equity component of an insurance company’s surplus investment portfolio.


Optimizing Currency Exposures under Solvency II

Neuberger Berman

The Solvency II Directive (2009/138/EC) imposes a specific solvency capital charge on currency mismatches between insurance companies’ assets and liabilities. Most insurers choose to hedge the bulk of their foreign-currency exposures unless they hold a particularly strong view on currency valuations, but a 100% hedge will almost certainly fail to yield the best volatility-adjusted portfolio returns over time.


Tax Reform: Impact on Capital Adequacy Downside Risk and Asset Allocation

New England Asset Management

Recently, we explored how tax changes have influenced the attractiveness of tax-preferenced investments and the impact of accounting regimes and taxes on rating agency and regulatory solvency assessments.1 This Perspectives addresses the impact of these tax changes on risk tolerances and asset allocation when taxes are explicitly considered in the decision process.


Private Credit Covenants 101

Voya Investment Management

Many insurance companies and other investors now look to private credits, also known as private placements, to provide the duration they need along with potentially higher returns and lower losses. Voya presents this overview of typical covenants used to protect the interests of private credit investors.


Asset Allocations of Life Insurers in Asia

Society of Actuaries / Coherent Capital Advisors

The Society of Actuaries Committee on Finance Research is pleased to make available a research report that describes trends in asset allocation of major life insurers across eight Asian markets (China, Hong Kong, Indonesia, Malaysia, Singapore, South Korea, Taiwan, and Thailand). The report was authored by a team from Coherent Capital Advisors Limited led by Fred Ngan.


Emerging Markets Debt as a Core Insurance Portfolio Allocation

Neuberger Berman

While there appears to be widespread recognition of the benefits of EMD investing among insurers, there is little evidence in their behavior to suggest that they treat the asset class as anything more than a tactical source of yield. As we discuss in this paper, it's clear to us that EMD should represent a strategic allocation for most insurers.


Conducting Due Diligence on Alternative Risk Premia

Morgan Stanley Investment Management

While alternative risk premia have existed for some time—and have long been used by hedge funds—they have only recently begun to be evaluated by a broad swath of investors. Given the growth of investor interest in this space, we thought it timely to share our insights on what constitutes effective due diligence.


How Insurers Might Implement ESG

DWS

Insurers have taken into account many of the risks resulting from the increasing frequency and intensity of extreme weather events in underwriting, but have failed to address physical climate risk to the same degree when making their investment decisions. In this article we explore the solutions that can be considered from a listed equity perspective with the potential of these investment solutions spreading into other asset classes.


New World Order: Bridging the Gap

New England Asset Management

In this Perspectives, we seek to reconcile VaR metrics to conventional solvency methods, emphasizing its usage for evaluation and guidance rather than dicta to be proscriptively followed.


Impact of Tax Reform on Municipal Bonds and Preferred Stocks

New England Asset Management

The “Tax Cuts and Jobs Act,” effective January 1, 2018, will have meaningful implications for tax-advantaged securities, particularly municipal bonds. This Thought Leadership paper examines the implications for insurance companies.


P&C Alternatives to Tax-Exempt Municipal Bonds Post Tax Reform

Conning

Conning’s view is that the recently passed U.S. tax plan should drive significant capital expenditure and increase take-home pay, providing a meaningful boost to U.S. growth via the consumer. However, its immediate impact on the municipal bond market may also cause investors such as property and casualty (P&C) insurers to revisit their portfolio strategies and allocation.


Insurance Liquidity Strategies in the Wake of Money Market Reforms

Deutsche Asset Management

New rules for prime money market funds caused investors to pull most of their cash out of these vehicles and turn to other liquid investments. However, prime funds have performed reasonably well since the rules went into effect, allowing investors to consider boosting the role of the funds in their cash investment strategies.


Private Debt: The Facts for Asset Allocators

Wellington Management

Investors have been flocking to private debt to escape the paltry yields from fixed income and exploit the retrenchment in bank lending since the global financial crisis. We have analysed the Cliffwater Direct Lending Index data to assess the extent to which private debt’s perceived attractions bear out in reality. Our findings provide food for thought for investors thinking of making an allocation to the asset class.


Emerging Markets Local Debt: A Paradigm Lost?

Western Asset

This paper provides perspective on EMD investing in China and other countries. It concludes that the paradigm of long-term EM debt investing remains intact, as fundamental improvements reassert themselves, albeit with greater differentiation across countries.


Enterprise Driven Investing for Insurance Companies

Bill Poutsiaka

Bill Poutsiaka, consultant to New York-based hedge fund Weiss Multi-Strategy Advisers LLC, among others, introduces Enterprise-Driven Investing – a valuable tool to help insurers consider all possible variables when it comes to investing. EDI provides a four-step business management process for insurers who seek to address investment pitfalls, improve decision-making and enhance results through their investments.


P&C Industry Book Yield Projections

New England Asset Management

In revisiting our analysis of declining P&C industry book yields, we have been interested to observe how closely actual figures have followed forecast. In addition the future trajectory shows less degradation than last year’s forecast, as the entire yield curve has risen over 50 bps since August of 2016, providing a better reinvestment rate. Although the future looks better, it does not appear that we have reached bottom.


THE SHIFT TO REFLATION: ASSESSING THE IMPACT TO PORTFOLIOS

PineBridge Investments

Asset class risk and return characteristics are morphing as markets move to a new reflationary environment. Investors should reassess their portfolio construction to take these new characteristics into consideration and evolve allocations accordingly.


Navigating the Amazon - Cross Sector Views on Retail Trends

New England Asset Management

The disruptive force of online retail is by no means a new phenomenon, but the pressure on traditional brick-and-mortar stores has escalated, judging by the national retail bankruptcies and store closing thus far in 2017. For the investment implications, we consider the appropriate portfolio actions in the face of this dramatic structural shift.


Municipal Debt for U.S. Insurers: More Than Meets the Eye

Neuberger Berman

Post-crisis dynamics in the muni market have created new challenges for insurers and make the case for specialized and dedicated attention.


Infrastructure Investing and the Shifting Macro Environment

Morgan Stanley Investment Management

The ultimate impact of a Trump presidency is uncertain, however. Trump’s focus on infrastructure with his $1 trillion proposal is likely to be positive.


U.S. Muni Debt - Infrastructure Investment Opportunity

New England Asset Management

U.S. Municipal Debt - An Infrastructure Opportunity for European Insurers... Infrastructure has emerged as an interesting asset class for European insurers. In this issue of Perspectives, we address questions associated with embarking upon investment in a new sector and moving away from a domestic market currency, and explore other issues impacting bond holdings, Solvency II and infrastructure investments.


Credit Risk Transfer Securities

New England Asset Management

As the Federal Reserve raises short term interest rates, Credit Risk Transfer securities potentially offer an attractive floating rate opportunity.


Proposed NAIC RBC C1 Factors for Life Insurers

New England Asset Management

The NAIC presented a proposal of new risk-based capital (RBC) charges for C1 investment risk in 2015. This issue of Perspectives highlights the differences between the current and proposed C1 factors, then utilizes the U.S. life industry data to illustrate key differences between optimized portfolios under current and proposed C1 factors.


Floating Rates Loans and Insurance Portfolios

Neuberger Berman

In a rising interest rate environment, the case for senior floating rate loans should be revisited. This paper provides a primer for investing in this asset class.


U.S. Bank Loans

Western Asset

In this Q&A, Portfolio Manager Timothy J. Settel outlines why we believe bank loans present an attractive investment opportunity.


The Case for Floating Rate Loans

Neuberger Berman

This white paper reviews the role that floating rate loans can play in a diversified portfolio.


Federal Home Loan Bank Program

New England Asset Management

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.


Emerging Market Corporates: Managing Liquidity

PineBridge Investments

As in all fixed income markets, secondary market liquidity is not abundant in EM. The decline in market liquidity means that investors who take too short term a view can end up being “topped and tailed” (i.e., selling out too soon or buying too late) when volatility increases. A longer term investment horizon, plus strong liquidity management, is key.


Tax Reform - Game Changer for Munis?

New England Asset Management

This Quick Takes explores potential tax changes of the new administration and their effects for holders of municipal bonds, specifically property and casualty insurers.


There’s A New Sheriff In Town: Now What?

New England Asset Management

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.


Tax Cuts, AMTs and Munis

Conning

The potential for lower tax rates under a new administration could have a significant impact on Property-Casualty (P/C) insurers' capacity for municipal bonds, and will certainly affect the tax-equivalent yield (TEY) (makes the yield on a tax-advantaged security comparable to a taxable) multiplier yield.


Demystifying Life RBC Equity Charges

Deutsche Asset Management

A key question among insurance company investment professionals--especially at US life insurers--is whether allocating away from core fixed income is worth the risk.


Projected Book Yields for the P&C Industry

New England Asset Management

In this issue we examine the potential timing and magnitude of additional book yield degradation for the P&C industry.


Private Credit: Changing Investor Needs Demand Flexibility

Barings

As the range of approaches to private debt investment widens, fund managers increasingly need to show that they can operate across geographies and the capital structure. Ian Fowler of Barings explains why this is so important.


Considering Opportunities in Low Return, Uncertain Environment

New England Asset Management

It is to an insurer’s advantage to adopt an enterprise capital management approach to optimizing asset allocation which encompasses a more complete integration with enterprise risk appetite and tolerances, a comprehensive vetting of investment guidelines and consideration of capital structure and management.