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Re/insurer investment market trends accelerated by COVID, say experts

16th November 2020 - Author: Luke Gallin

As insurers and reinsurers continue to adapt to the lower-for-longer interest rate environment, the arrival of the global COVID-19 pandemic has served to accelerate certain trends in the marketplace, according to industry experts.

cio-panel-prospectus-2021On the second day of Prospectus 2021 – the new annual re/insurance and insurance-linked securities (ILS) conference, attendees were treated to an expert panel focused on what really matters for Chief Investment Officers (CIOs) going into 2021.

It’s no secret that interest rates have been dangerously low for some time now, and with the lower for longer environment expected to persist for the foreseeable future, insurers and reinsurers are once again increasingly focused on underwriting discipline and profitability.

In light of the challenges on the asset side of the balance sheet, session moderator Van Hesser, Chief Strategist at Kroll Bond Rating Agency (KBRA), questioned panellists on the impact COVID-19 is having on the investment landscape, and whether the introduction of a global pandemic has led to any changes in the investment philosophy.

“I think COVID has accelerated certain trends in the marketplace,” said Vincent DeLucia, CIO, New England Asset Management, Inc. “In a lot of cases those trends were already fairly long in the tooth, and we’ve talked about retail and we’ve talked about energy.

“I think, some of those things were accelerated. The move to a more technologically driven set of circumstances, I think, all of us are sort of shocked at the work from home experience being as successful as it has been.

“I would say our strategy really hasn’t changed, insofar as what we are doing, or not doing, maybe more importantly. We were shying away from certain sectors for quite a long time in advance of COVID, because of the secular changes and I would say, that’s probably kept us in fairly good stead.

“One thing that I think is helpful to keep in mind here, is that we’re going to just continue to stick to our knitting…So, now the challenge in front of us is scraping out yield for our client base in whatever way forward.

The strategy, I think, to the extent it changes, it’s by investigating additional asset classes, perhaps taking somewhat more risk in a smart fashion in order to generate as much yield as we can for our client base.”

Panellist Jason Pratt, Head of Insurance Fixed Income at Neuberger Berman, agreed that in terms of his firm’s approach to markets, nothing’s changed.

However, he continued, maybe more the question is how the objectives, particularly in re/insurance portfolios, changed themselves.

“I think the thing we would all agree on is that you’ve got a wide spectrum of objectives that can play out, whether it’s the life sector or the P&C market,” said Pratt.

Adding: “You can get into some pretty specific issues around quality and liquidity and income and return. So, I think on that front, the thing that stands out to me is that vulnerability, particularly in the P&C side, of the opportunity to grow the rate of capital through investment performance.

“We’re coming out of a year where investment grade, Barclays agg type index portfolios, are going to generate more than 7% or 8% in returns this year. That is not happening in 2021 and so I think it’s forcing a lot of insurance organisations to think about what their expectations are from portfolios.”

He continued to explain that with regards to internal changes, the way that the company communicates has changed in a significant and good way across the platform.

“We had great technology in place before COVID, but I think the way we’ve enhanced the dialogue has probably been a real positive for us and a lot of that will stay in place going forward, even though we’re partially back in the office, which may be hard to believe,” said Pratt.

Paul Norris, Managing Director, Head of Structured Products, Conning, stressed that “there’s nothing like being tested through the fire” and concerning the investment process, noted that “it held up well” during COVID-19.

“We were very proud, like the guys on here are proud of how they came through it. So, we feel like that the technology, the way it worked, only reinforces the process.

“I do agree that I think clients are definitely looking to take more risk coming out of this. And, so, I think one of the changes could be where you see different clients asking for different risk metrics as we move forward, which could be a change in terms of systems, reporting, that sort of thing,” explained Norris.

To watch every session on-demand please visit the Prospectus 2021 website.

Thank you to our Prospectus 2021 sponsors:

prospectus-2021-conference-sponsors

Please contact us for more details on sponsorship opportunities at future events.

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