endstream Not surprisingly, bonds represented the largest asset type, at 71.1% of total cash and invested assets, which was slightly higher than that of year-end 2008 and year-end 2010. So you know you want to invest in mostly funds, some … Competition remains fierce given the … 2 Investment is defined to include (i) each managed account for a third-party insurance company with a unique investment strategy and (ii) each investment by a third-party insurance company in a MIM- sponsored fund. ;꣎P��%�,@ÿw&M*��dY_6v7�q-mwh���y;�~4m�o��NLM$��5����B��x��un����mH�qd}^���=�PƜ#�#S��"���g!d�إ-|����B��P)��Di!��"�B7��S�4Mf(3�f"tJ�S��({�?�UM' ?��,�_vW�;΋;ְ���O/���2��3�ѣ��X��.�5�o e�� Mortgage delinquencies and defaults skyrocketed, followed by a significant increase in foreclosures, thereby negatively impacting credit risk. As shown in the table above, our analysis also included a more detailed sector breakdown of the $3.5 trillion bond exposure as of year-end 2010. As they are able to plan when the cash flows are needed, they do not … 3 0 obj In a strong economy, risk appetite tends to increase and the converse is true during poor economic conditions. The U.S. financial crisis emerged toward the end of 2007, and it has continued along with an ongoing housing crisis and persistent high unemployment rates. As the table above shows, as of year-end 2010, the majority of insurance industry investments were in bonds (69.7% of total cash and invested assets) followed by investments in common stock (10.3%). Overall, structured investments, including government-agency and non-government agency mortgage-backed and asset-backed securities, represented about 23% of total bond exposure as of year-end 2010. Examples include high-quality bonds issued by the US federal government or triple-A bonds. The Capital Markets Bureau will continue to monitor trends within the asset mixes in the insurance industry and report on any developments as deemed appropriate. H�tTMo�0��W�H ���ؾð�oE�#�ɰ���#E�[�6�����H9I���>}�Y&yҏ�.-�$��:P��a���]�!�H��v������t�����vo:L{���}528��4�w�0��B�$�]y�^���n�/��m�a���.����%g,[wu��8�Y^�$r�$�,�*�A Investment Profile During a Period of Prosperity: Year-end 2005, Prior to the financial crisis, the industry’s appetite for risk (and reaping the rewards for such investments) was more tolerable. As the table below indicates, corporate bonds represented the largest bond type for the industry at 44% of total bonds as of year-end 2005. As the table below shows, corporate bonds are, consistently and by far, the largest asset type regardless of company size. Investment Profile During the Financial Crisis: Year-end 2008. Despite changing economic conditions, the insurance industry’s asset mix does not appear to change significantly. Through our experience managing high-quality fixed income portfolios for insurance companies, we believe that closely partnering with clients to routinely revisit their investment needs is … Does regulation impose a binding constraint on portfolio investments? The study … The general state of … Banking, insurance and finance-related industries comprised the majority of common stock investments at 18.2% of total unaffiliated common stock holdings as of year-end 2010. One of the beautiful things about … The study aims to explore the real status of investments portfolio structure of both life and non life insurance companies of Nepal. For example, municipal bonds are the largest bond type for property/casualty companies, at 38.7% of total property/casualty cash and invested assets as of year-end 2010. According to research from Cerulli Associates, U.S. insurance companies, which have more than $4 trillion in mostly investment-grade bonds in their portfolios and more than $6.2 trillion … Rising insurance premium rates, solid capital position, changes to product portfolio and stable interest rate should drive insurance stocks in 2020. l�oE0��� g�_�� ,�-�Ajy��Ȯ&��`�oj{� ��q��4�L��իh���>F�. In addition, we show the asset mix and bond sector breakdown as of year-end 2008 and year-end 2005. These were a risky investment given, at the time, the abundance and severity of ratings downgrades to these securities by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. Insurance stocks that have good value. Insurance Board of Nepal has issued modified directives for the safe and secure investments of Insurance fund The paper examines the current investment practices adopted by the insurance companies … Structured securities investments overall were 26.8% of total bonds as of year-end 2005, which was not much different than exposure as of year-end 2008, which totaled 27.6%. In fact, the portfolio looks similar to traditional insurance … © 1990 – 2018 National Association of Insurance Commissioners. For life insurance companies, stock market investments represent around 5 percent of total holdings. As a result, current market sentiment indicates a “flight to quality”; that is, a conscious move to safer, less-volatile and shorter duration investments. Again, common equity was the second-largest asset type at 10.5%. In order to unpack the risk quantities of insurance companies’ portfolio into these two sources of risk, we come up with a matching algorithm. Note that the percentage of each bond type may vary within each insurance company type. Consistently in each of the three analyzed years, bonds represented the majority of insurance industry investments, ranging between 68% and 71% of total cash and invested assets. <>stream Determine the best asset allocation for you. And, within the bond sector, the largest type across all three years was corporate bonds, ranging between approximately 43% and 48% of total bond investments. You should consider a variety of factors with respect to each fund option, including the fund’s investment objectives and policies, management fees and other expenses that the fund charges, the risks and volatility of the fund, and whether the fund contributes to the diversification of your overall investment portfolio. Insurance companies using derivative financial instruments shall dispose of qualified and expert staff, an investment strategy that foresees such instruments, an investment management that takes into consid … Year-End 2010 Investment Portfolios: Economic Distress Continues. A car insurance … The second and third largest common stock holdings included consumer products (17.3%) and debt/equity/other funds (13.2%). Property/casualty companies represented the second-largest, at 30.1% of total cash and invested assets. The asset mix of an insurance company’s investment portfolio varies over time based on different influences, including both macroeconomic and industry-specific factors. Combined with the investment strategies that each insurance company has documented in their statement of investment policy and guidelines, they also take into consideration macroeconomic trends and fundamental credit analysis in determining their investment portfolio composition. Despite macroeconomic conditions, bonds in general have seemed to be the most attractive asset type that fits within the insurance industry’s investment strategy, perhaps due in part to the profile of insurance industry liabilities, among other reasons. Captive insurance assets, predominantly in the investment portfolio, provide a substantial portion of the free cash flow necessary to meet the claims obligations of the company. %PDF-1.4 There, insurers have traditionally matched the relatively predictable cash flows of annuities with a diverse portfolio of corporate bonds. In terms of specific bond types within the aggregate insurance industry, the table below shows that approximately half of all bond investments were corporate bonds as of year-end 2010. For example, life companies have longer-term liabilities than property/casualty companies; therefore, the former invests more heavily in longer-term assets, such as bonds with 30-year maturities, than the other industries. Life companies accounted for the majority of industry cash and invested assets in terms of BACV, at 65% of total cash and invested assets as of year-end 2010. Life companies also had the largest concentration of non-agency residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS), at 10.9%, compared to 4.5% for property/casualty companies and 7.8% for fraternal companies. Our investment process begins with a strategic assessment of portfolio objectives and risk appetite. Please contact the Capital Markets Bureau at CapitalMarkets@naic.org. In addition, as of year-end 2010, more detailed information was available regarding insurance company investments’ book adjusted carrying value (BACV) of securities lending collateral and derivatives exposure, both of which were less than 1% of total cash and invested assets for the entire industry. Insurance company portfolios are therefore largely made up of fixed-income securities like high-quality bonds issued by the U.S. government or AAA-rated bonds from … Portfolio insurance is the strategy of hedging a portfolio of stocks against market risk by short-selling stock index futures. Note that the table above shows a sector breakdown of the unaffiliated common stock investments only (that is, it excludes affiliated common stock investments), which, therefore, excludes approximately $317 billion in BACV of the industry’s overall common stock investments as of year-end 2010. Bonds include categories such as corporate debt, municipal bonds, structured securities, U.S. government bonds and foreign government bonds. A list of archived Capital Markets Bureau Special Reports is available via the index. Very few insurance companies will regularly earn an underwriting profit, but all insurance companies earn money from their investment portfolios. Within the other corporate sectors, utilities (including electric and water companies) represented 6.2% of total bond exposure, while consumer products and services (such as retail, home furnishings, food products and services) represented 5.3% of total bond exposure. Reviewing Insurance Company Investment Portfolios November 17, 2017 Presentation at Rutter Associates Autumn 2017 Seminar by Bob Selvaggio Co-Owner and Head of Analytics, Rutter … Because life companies hold the largest amount of industry invested cash and assets, we analyzed the investment portfolios’ asset type breakdown by life company size using the most recent data available (July 2011). However, municipal bonds are only 4.8% of total life companies’ cash and invested assets, primarily for tax reasons. Questions and comments are always welcome. Note that RMBS exposure was slightly less, at 9.9% of total bonds as of year-end 2005, compared to 10.4% as of year-end 2008. The whole idea -- most insurance companies really want to build an investment portfolio so that the duration of their assets matches that of their liabilities. Investment Management – A creator of value in an insurance company The global financial crisis in 2008 highlighted the importance of having a clear investment policy as well as a structured and disciplined investment process for insurance investment management. H��S�n�0��+x��Y1%[�v\�d PE���%��ΖW�i�O�?�0ʎ��� C�H�����H��Mw��#$B��"V�fXRhs�g%�G@�� M*ti,��¶�5�uTl�n٣���Hz�/`Y&aI5 4S 7�ZSh�o�wDy�>dl2G���LY��b����ZГm��3[�OW�� ��T _(��͡������ �B��n��Tc�f�~�{�G($��x�jS��]��%��(�f��9H�xS��sQ����;�>�P~���1J���z�V"$N�7�`|�����Γ-��@}�Ɗ��w?7c�I1���R�F�����!Ѳ��4��&J9fӂ*:��0ڥO. The general state of the global economy, industry trends, market and political events also impact investment management decisions. Diversified Holding Company 99% 2008/01/01: $4.5 Billion McLane Company: Logistics 100% 2003/05/23: $1.45 Billion: Medical Protective: Liability Insurance 100% 2005/06/30: MiTek Materials and Construction 90% 2001/06/12: Other 10% owned by MiTek management National Indemnity Company: Insurance … The one exception, property/casualty companies, had its largest exposure in municipal bonds, at approximately $355 billion in BACV, or approximately 39% of property/casualty companies’ total cash and invested assets. Even more interesting is the sector breakdown of the bond types, particularly for corporate bonds. The asset mix of an insurance company’s investment portfolio varies over time based on different influences, including both macroeconomic and industry-specific factors. This is because corporate bonds represent an attractive investment relative to matching assets to liabilities, appetite for volatility and liquidity risk. While government agency-backed RMBS were not immune to the negative credit risk implications, especially as the government agencies — Federal National Mortgage Association (FNMA or Fannie Me) and Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) — were placed under conservatorship by the U.S. government in 2008, “private label” RMBS without government backing were clearly the more volatile investments, and they suffered losses in the underlying assets, as well as severe swings in market value. This is just slightly lower than the 48.7% of total bonds as of year-end 2010. Given recent turmoil within the housing sector, both RMBS and CMBS have been volatile over the past few years in terms of credit risk. As the table above shows, the percentage mix of bond types varies between the different insurance company types due, in part, to duration management and risk appetite. While we were able to show this as of year-end 2010, we believe it will be interesting to compare this data to a sector breakdown for year-end 2008 and year-end 2005 in a follow-up article at a later time. Similar to other industries, an adjustment to risk appetite tends to also result in an adjustment to investment strategies and philosophies. Most corporate bond investments made by the insurance industry are also in names that are relatively liquid. Note that the market typically refers to notional values, and not BACV, when referring to derivatives. This technique, developed by Mark Rubinstein and Hayne Leland in … It was also the largest category for four of the five insurance company types. In terms of insurance company investments, as of year-end 2008, when some considered the crisis to have been at its worst, insurance company investments in bonds represented the largest asset type, at 67.6% of total industry cash and invested assets, which was relatively consistent with the industry’s bond investments as of year-end 2010. As a rule, insurance company portfolios consist of fixed-income securities. Data for 55 life insurance companies (stock, mutual, and fraternals) has been analyzed to answer these questions. Generally, the investment portfolio is designed to capture investment yield while maintaining adequate cash for liquidity and working capital. This report discusses our findings relative to asset mixes, a breakdown of the bond sector and a further breakdown of the bond exposure as of year-end 2010 into sectors/industries. Financial portfolios seek capital appreciation by investing primarily in equity securities of U.S. or non-U.S. financial-services companies, including banks, brokerage firms, insurance companies, and … The data presented in table 4.2 above indicate that investment portfolio of insurance companies in Nigeria from 1996 to 2011 was made up of government securities, stock and bonds, … The evolution of insurer portfolio investment strategies for long-term investing by Helmut Gründl, Ming (Ivy) Dong, Jens Gal* ... regulatory treatment may inhibit insurance company investments. The objective of this report is to provide an overview of the evolving investment *BACV amounts within the structured securities section might not tie out exactly to the BACV amounts included in the Year-End 2010 Bond Breakdown table due to data sourcing differences. Similarly, as shown in the table below, common stock investments represented the second-largest industry investment, at 9.2% of total cash and invested assets. Life insurance companies typically have fairly large investment portfolios, so it takes a much larger number of property/casualty insurance clients to reach the same dollar amount of assets as would be … Senior level discussions are held with key business leaders, and result in benchmark portfolios that … insurance company, with an SVO 1 designation or a rating issued by a nationally recognized statistical rating organization equivalent to an SVO 1 designation, that covers losses to an eighty percent (80%) loan-to-value ratio. The portfolio … The views expressed in this publication do not necessarily represent the views of NAIC, its officers or members. %���� To analyze the insurance industry’s asset mix during a recent period of economic prosperity, we reviewed the asset type breakdown as of year-end 2005. Bonds have been the preferred investment type, and corporate bonds have been the preferred bond type. 4 0 obj There is continued distress within the financial markets, particularly banks, as well as ongoing concerns about residential and commercial real estate, which appears to be worsening modestly. It also underlined the need for insurance companies … As of year-end 2010, the U.S. economy seemed to be on a path to recovery; however, over the past few months, this has become uncertain. At the same time, the insurance industry invests with certain overall strategies in mind, such as matching assets to liabilities in terms of maturity and interest rate risk, including managing duration; liquidity requirements; and overall risk appetite/volatility tolerance. Each week The NAIC’s Capital Markets Bureau monitors developments in the capital markets globally and analyzes their potential impact on the investment portfolios of US insurance companies. Insurance company … Buying insurance is a way to gain financial peace of mind, and buying the right insurance stocks can do the same when it comes to your investment … <>stream C. “Accident and health insurance… And, bonds in aggregate (that is, corporate bonds, structured securities and U.S. government bonds) represent at least 80% of invested assets across all life company sizes. Corporate bond exposure is predominantly investment grade credit risk; however, there is a portion that is below investment grade, some as a result of downgrade activity post-purchase by the insurance companies, while others due to active purchases.