This year has seen general insurers diversify into alternative assets such as real estate and infrastructure; as well as absolute return strategies in response to falling markets and rising inflation. CAMRADATA’s latest whitepaper, UK Insurance CIO asks if insurers will continue de-risking if market pessimism lasts.
The whitepaper includes insights from firms such as Payden & Rygel, Waverton Investment Management Limited, Charles Taylor Investment Management Limited, Foresters Friendly Society, MS Amlin and Riverstone International, who all attended a roundtable hosted by CAMRADATA in London in September.
So far 2022 has been a terrible year for financial markets, with losses almost everywhere bar the energy sector. To the end of August, gilts were down 19.5% and global bonds are down almost 16%, slightly better than equities. The MSCI ACWI index ended August at almost -17.5% in dollar terms[i].
The report looks at portfolio performance year to date, along with the nature of the liabilities which the panellists are investing to cover and where they had found value. It then explores where investors will go next, and why it’s vital to understand where inflation has come from and where locally it will persist.
The report considers the challenges from COVID and rising energy costs, plus the role of central banks which it was noted have been too loose for too long, especially whilst fiscal policy was also being eased during COVID. It looks at whether Absolute Return strategies and benchmarks can be helpful in the current environment.
With so much uncertainty in Europe around energy supply, the report ends by asking whether ESG has taken a back seat to keep the lights on and factories running this winter.
Natasha Silva, Managing Director, Client Relations, CAMRADATA said, “Investors will want to forget this year, but their losses might be too painful to pass from memory any time soon. Whilst diversification along with stock picking in credit has provided a modicum of support, the big question is whether insurers will continue to derisk.
“With inflation coursing through the economy, they cannot simply sit on cash. But if central bankers do raise interest rates to create a recession, not only will inflation weaken but also the strength and prospects of plenty of corporate lenders. A successful, shallow recession next year however could result in decent returns on government bonds.
“In the meantime, insurers may have to rely on more subtle, possibly quicksilver opportunities in credit, duration and currency management to eke out returns. Our whitepaper explores all these issues and considers what 2023 might hold for insurers looking to reduce volatility and find returns.”
The whitepaper also includes two opinion articles from the sponsors:
· Payden & Rygel – ‘Time-tested investments for testing times’
· Waverton Investment Management Limited – ‘The Truth behind ESG Integration’
To read the UK Investment CIO whitepaper, please click here.
For more information on CAMRADATA visit www.camradata.com.