In the second of two articles, seven people with different perspectives on the insurance industry’s investment scene offer their predictions of what 2022 might hold.
The pundits
Russ Bowdrey (RB) Team Lead, Client Servicing - Climate and ESG Solutions at Ortec Finance and previously Senior ALM Manager at Aviva
Tim Carroll (TC) independent non-executive director with Lloyd’s businesses and insurance companies
Frank Eich (FE) consultant on economics, financial markets and sustainability and former senior advisor to the Bank of England
Con Keating (CK) Head of Research, Brighton Rock Group
Dave Matcham (DM) CEO, International Underwriting Association of London
Erik Vynckier (EV) Board Member, Foresters Friendly Society & Lay Chair, Institute and Faculty of Actuaries
David Worsfold (DW) freelance financial journalist and contributing editor to Insurance Investment Exchange
- ESG and climate change have shot up the political and regulatory agendas. What impact is that having on investment strategies?
RB A panicked scramble to catch up with the early movers. Sector level considerations will become more "strategic", ie more of a worry for asset owners, rather than being left to asset managers to play with.
TC Impacting strongly as companies debate whether to cease supporting “fossil fuel” stocks or remain engaged to oversee execution of carbon neutral strategies.
FE ESG and climate change is another risk to consider for investors just like political risk etc. ESG and green investment will probably become more mainstream over time. Greater transparency and better reporting standards will all help to make that transition to mainstream.
CK Very little impact – so far it is more talk than substance. With China the lead offender, we have seen huge international inflow there.
DM Many investments need to be analysed as to whether they meet new targets and risk factors. I feel that coal is still needed, not least to power renewable industries, so don’t throw the baby out with the bathwater.
EV I suspect we have seen the high point of the ESG tide but I try to blend out the craze for ESG and find the poor judgements in its philosophy and execution. That’s where both attractive assets are to be found and hints at overvaluation, even imaginary valuations, may be spotted. The “green new deal” has already hit bottom in US congress but no doubt other countries will waste more money on poorly thought out plans, spending ever more for increasingly disappointing outcomes. Other countries, like China and India, will exploit the gaps left by European countries and companies to outsmart and outpace Europe.
DW ESG is here to stay but it has a long way to go, not least in establishing real clarity about what ESG is. Definitions are crucial and there is a road littered with hazards for investment managers. There is a genuine threat of grave reputational risk lurking for the sector if it plays fast and loose with strategies that claim to be something they are not.
- What will be the biggest changes for you in the “new normal” of hybrid working?
RB Seeing more of my family. Productivity is the same or higher than before.
TC Getting staff to return to the office. There is great reluctance as staff get used to WFH (working from home) and make judgements on the work/life balance they want going forward. It is noteworthy that office occupancy is lower on Mondays and, certainly, on Fridays. Boards can cope virtually with what might be considered “routine matters” eg approving audited accounts. When it comes to debating strategic matters, virtual meetings are a poor substitute for face to face interaction.
FE The biggest changes have clearly happened already. We are perfectly capable of working hybrid. Open-minded businesses will try to make the most of this. Some things work very well remotely, other things not so much. Finding the right balance will be key.
CK One of the biggest challenges will be developing junior staff.
DM The big changes have already been made and mindsets around flexible working are set. I cannot see many firms going back to five days in-office during 2022. I see job vacancies using hybrid working language as a positive to join the firm.
EV Getting people back to the office, which is where real team work and creation occur. Countries who step out of the self-inflicted crisis mode first, will grow harder and innovate more, leaving the rest of the world lagging economically.
DW For me home was already my office when lockdown hit in March 2020 but it is the loss of networking opportunities that I have missed most keenly. The serendipity of chance meetings and conversations is vital in most walks of life, but especially in a business where market sentiment plays a big part and shared intelligence is so important. Virtual meetings are no substitute for that.
- What future for business travel? Are you looking forward to stepping back on a plane or is it Zoom all the way?
RB Generally Zoom, backed up with monthly trips.
TC Business travel will decrease dramatically permanently but will endure to a more limited extent.
FE I am expecting less business travel post Covid. Clearly, not all meetings have to be held in person so businesses will focus on those meetings which really, really benefit from being in one room. Unnecessary business travel will also become less frequent as a result of ESG and climate change policies. With businesses having to report their carbon footprint, surely this is a good place to start?
CK Face-to-face will be a rarity for a long time and reserved for really important situations.
DM Yes, I have missed the travel but am not confident to yet book it as the level of long-term certainty is not there. I hate Zoom, Teams for me.
EV Business travel is much more effective in establishing new business contacts, innovating projects and productive and profitable growth. The world has been at a standstill. Those that have the courage to venture out first will inherit the world.
DW Re-setting the dial will be a major challenge for many businesses. They have seen significant cost savings and a reduced carbon footprint over the last two years but also know that major client relationships can only be established and nurtured face-to-face. The virtual world we were thrown into two years ago has proved effective in maintaining routine conversations with international clients and that will stay alongside less frequent international jaunts.
- Any thoughts on when or how the Covid-19 pandemic will end?
RB Like previous flu-like pandemics the mutations will become less severe and settle down to be endemic around 2.5 to 3.5 years after outbreak. The impact will continue to be huge for emerging markets.
TC I think Covid will become endemic within the next year or two and we will learn to live with it even if that means booster shots every six months.
CK It will not end until we have vaccinated all of Africa but the end is in sight for the developed world with the development of RNA based anti-viral medications. With widespread distribution of those, we will simply live with it as the mortality rate will be not much different from several other endemic diseases.
DM Ultimately it will end when we want it to. Many have partially made that decision. I can’t see another lockdown unless there is a variant which no vaccine can beat.
EV The pandemic has ended. There is no objective endpoint to the social crisis which has been engineered on the back of the medical situation of March-April 2020. We have long since passed the endpoint of the medical emergency, if one ever existed. We are subject to a crisis of confidence, a manufactured neurotic crisis, not a health crisis nor an environmental or ecological crisis.
DW It does feel at last that we are on the road to the New Normal but there is a lingering fear that we will have to plunder the Greek alphabet to name another variant.
- What is your New Year resolution when it comes to insurance portfolio management in 2022?
RB Get the message out: "climate risk is far more than carbon pricing and transition risk... Physical risk is a huge deal for insurance asset portfolios and no one is really talking about it".
TC Take maximum advantage of hard market trading conditions particularly if you have the capital and rating – and are “light touch” for Lloyd’s.
CK To survive and prosper.
DM A gravitation towards green and clean, but not as pure as some would prefer. We are not ready for that yet.
EV Finding superb assets at cheap prices. The asset management industry has given up on this task, but they are out there. There are opportunities in private debt, private equity, transitional real estate, inventory and invoice financing, certain infrastructure and certain fintech funding. At the same time, most venture and start-up capital seems not intent on building new business with clients and cash flows but building bigger bankruptcies for when the bubble bursts. Active management based on research, expertise and selectivity is the order of the day.
• Download Erik Vynckier’s full in-depth and thought-provoking responses to our questions. IIE_2022_New_Year_Predictions.pdf
• Many thanks to our pundits who have been brave enough to share their thoughts on a wide range of topics. Read their views on 2021’s big surprises, portfolio strategies, inflation and interests rates in Part 1 of our 2020 predictions.
Complied by David Worsfold