IR+M

Insurance Industry Trends: How the NAIC Principles-Based Bond Definition Impacts Asset-Backed Securities

With the National Association of Insurance Commissioners (NAIC) preparing to implement new reporting guidelines for fixed income securities, we engaged with various industry participants to better understand the impact on our insurance clients’ portfolios. By connecting directly with the NAIC, vendors, and regulatory partners, we determined the likely impacts on our clients’ investments, which are summarized below.

Insurance Industry Trends: With 2023 in the Rearview Mirror, Insurers Still Have Plenty of Runway Ahead

PLAYING WITH THE WIND AT OUR BACKS IN 2024

For market participants and spectators, 2023 seemingly had a little bit of something for everyone: a nail-biter of an acute banking crisis; near-miss on a US government shutdown; a downgrade of the home team’s credit rating. These events, coupled with ongoing geopolitical conflicts and rate volatility, made 2023 a challenging, but memorable year. With a US presidential election, possible government shutdown, and rate cuts on the horizon, 2024 may be another year awash with momentum shifts and unexpected winners and losers. As investors grapple with persistently high yields and volatility, we believe that there will be opportunities for skilled active managers to shine.

IR+M’s Special Market Update

On August 1st, 2023, rating agency Fitch downgraded the United States’ long-term rating from AAA to AA+.

IR+M’s July Market Update

The positive momentum in risk assets from June carried over into July as equities rose and credit spreads tightened amid better-than-expected inflation prints and economic data.

IR+M MARKET UPDATE - Insurance Industry Trends: Back to Basics, But With More Yield

Our annual analysis of insurance company filings examines trends and changes that occurred in insurance companies’ investment portfolios during 2022. Insurers were impacted during the year by the sharp increase in interest rates and negative returns from risk assets. While most investors were anxious to turn the page on 2022, insurers will likely benefit from higher rates in the years ahead. Within this piece, we also highlight potential investment opportunities that insurance companies can uncover in this new investment landscape.

Fixed Income in 2023: Shelter From The Storm

2022 provided investors with a plethora of challenging factors to navigate including persistently high inflation, rising interest rates, a hawkish Fed, geopolitical unrest, and deeply negative returns, to name a few. Despite the uncertain macroeconomic environment, corporate fundamentals remained relatively stable as companies were able to fortify balance sheets over the last few years in the midst of record low yields. As we enter 2023, uncertainties remain amid continued tight monetary conditions and what the potential impact may be to the broader economy. In this piece, we review corporate technicals and fundamentals, and what could be in store for the remainder of the year.

The High-Yield Corporate Market: Looking Back and Looking Forward

The potential knock-on effect of tighter financial policy has come into focus, as investors shift their attention from inflationary pressures to slowing economic growth. Many investors suggest an inevitable recession in 2023 which has historically had an outsized impact on the high-yield (HY) corporate market. But should we use history as a guide for 2023? In this piece, IR+M’s High Yield team reviews some themes from last year’s challenging environment, with wider spreads and higher rates, before previewing what we might expect in the year ahead.

Commercial ABS Debt Maturity Wall: “Die Another Day”

At this juncture in the bond market, many Commercial ABS issuers seem to have found themselves in the plot of a James Bond thriller. Commercial ABS bond yields have more than doubled over the last year as the Federal Reserve (Fed) battles inflation, creating refinancing risk for issuers with balloon-style repayment structures. Thanks to a very manageable near-term debt maturity schedule, however, many Commercial ABS issuers just might live to “Die Another Day.”

Checking in on the CMBS Market (Again)

Following the collapse of Silicon Valley Bank (SIVB) and additional stresses in the banking sector, the commercial real estate (CRE) market has been the latest sector to come under the microscope. The interdependencies between CRE and regional banks, coupled with weakness in the office sector and higher interest rates, have been cause for concern for commercial mortgage-backed security (CMBS) investors. In this piece, we explore the recent headwinds for CRE as they relate to regional banking and the office sector and shed light on our approach to deliver returns in this environment.

Insurance Company Fixed Income Portfolio Trends & Opportunities – 2022

In our annual analysis of insurance company filings, we examine trends and changes that occurred in insurance companies’ investment portfolios during 2021. As is typically the case, overall portfolio allocations were relatively stable, but we did notice some noteworthy shifts on the margin. We also highlight some investment opportunities for insurance companies in a rising interest rate environment.

You Say Goodbye [2021], I Say Hello [2022]

We began 2021 with a renewed hope of normalcy given the production and distribution of COVID-19 vaccines. The global economy reopened, leading to a sharp rebound in economic activity from the pandemic-induced sell-off in March 2020. The supportive economic backdrop and positive investor sentiment pushed corporate spreads to their tightest levels since 2005. While we believe corporate fundamentals support these valuations, potential headwinds remain in 2022. In this piece, we review corporate technicals and fundamentals, while addressing what to look for in the year ahead.

IR+M UPDATE: Inflation’s Impact on Insurers

As the global economy continues to recover, an accommodative Federal Reserve (Fed) and stimulative fiscal policy have pushed inflation concerns to center stage. By some measures, inflation is at its highest in over a decade, and several factors could sustain these levels. Conversely, other metrics point to a more benign environment, and suggest the recent increase may be “transitory.” While we do not predict the future, we believe overall inflation risks are elevated, particularly given current spreads and valuations. In this piece, we focus on key inflation metrics and the potential impact of inflation on the insurance industry.

Checking in on the CMBS Market

As the coronavirus spread and upended the world economy, businesses of all types were forced to temporarily shut down. The resulting loss of revenue has left many property tenants struggling to pay obligations to landlords, and a significant number of retailers declared bankruptcy. The $600 billion Commercial Mortgage-Backed Securities (CMBS) market encompasses many of the businesses most impacted, such as restaurants, office buildings, hotels and malls. Some investors are beginning to fear that losses may occur in their fixed income portfolios, but are such fears overblown? In this piece, we address the state of the CMBS market and detail our take on the sector.

The ESG Insurance Policy

Throughout the volatility in 2020, global insurers’ interest in ESG investing has grown significantly. From both an asset and liability perspective, more and more insurers are focusing on ESG as they anticipate additional regulatory actions, calculate financial risks, and consider the potential reputational risks associated with ignoring the importance of ESG. As we head into 2021, we expect that this trend will become more pronounced, driving sustainable change in business and investment decisions.

Insurance Company Fixed Income Portfolio Trends – 2021

Insurers continue to grapple with low rates and search for ways to add yield in this environment. While overall portfolio allocations were stable in 2020, there were several noteworthy allocation moves, including a continued decrease in municipals and growth within NAIC 3-rated securities. In our third annual analysis of insurance company filings, we examine the impact of these trends and changes both in 2020 and going forward. We also explore how insurers can navigate this low-yield environment without moving too far out on the risk spectrum.

Insurance Company Fixed Income Portfolio Trends – 2020

In our annual analysis of insurance company filings, we examine trends and changes that occurred in fixed income portfolios during the course of 2019. Although overall portfolio allocations were relatively stable, we saw a continuation of some trends identified last year, including a decrease in municipal allocations. Given the current elevated downgrade risk, we also look at fallen angels and the potential impact to NAIC 3 exposure.

Insurance Company Fixed Income Portfolio Trends

Insurers have long been heavily invested in the fixed income markets. Within the asset class, allocations continually evolve as market dynamics shift and new reforms are implemented. However, given the many nuances insurance companies face when investing, changes have historically been enacted over an extended period of time and at a gradual pace. In this mailer, we analyzed the recent 2018 filings to examine how insurers repositioned their fixed income portfolios, and what trends we expect going forward.

Insurance Company Fixed Income Portfolio Trends 2021

Insurers continue to grapple with low rates and search for ways to add yield in this environment. While overall portfolio allocations were stable in 2020, there were several noteworthy allocation moves, including a continued decrease in municipals and growth within NAIC 3-rated securities. In our third annual analysis of insurance company filings, we examine the impact of these trends and changes both in 2020 and going forward. We also explore how insurers can navigate this low-yield environment without moving too far out on the risk spectrum.

Episode 136: The CMBS Market with Jim Gubitosi, Co-CIO of IR&M

Jim Gubitosi is the co-CIO of Income Research and Management.

Episode 114: Talking MBS, Govies, and Agencies with Jake Remley of IR&M

Join host Stewart Foley on the InsuranceAUM.com Podcast as we delve into agency MBS, govies, and the evolving mortgage market with Jake Remley of IR&M.

Episode 72: Rising Rates Pushing Investors Back to Core Bonds

In this episode of the InsuranceAUM.com Podcast, host Stewart Foley, CFA, dives into the world of core fixed income with insights on rising rates, inflation, and how insurers are positioning portfolios in today's environment.