No events. No seminars. No roundtables.
In short, there are few if any opportunities to exchange information, ideas and insights on how the Covid-19 pandemic will impact insurers’ balance sheets. But we do have the ability to do that digitally, given the wealth of data out there. The trouble is we are all being overwhelmed by information and are having to make huge adjustments to our lives alongside, making it difficult to distil what we really need.
For chief investment officers and their teams, along with the asset managers and advisers that support them, what they need is clear, focussed summaries of key relevant information with accompanying analysis.
The Insurance Investment Exchange is now geared up to provide that. We will provide a weekly (or twice weekly when events dictate) round-up of key data, backed with a brief commentary and insights from the community.
Please click here for the first of our regular updates. IIE_Covid-19_Update_1.pdf
• The second update with greatly expanded datasets is now available. We have updated key data and our analysis on trends, as well as beginning to capture the emerging data points on the economic and financial fallout. Next week, we will deepen our analysis further, as we gather and digest further sources, and share additional insights of relevance with the insurance community. IIE_update2_coronavirus_2020_04_06.pdf
• The third update containing the very laetst data relevant to CIOs and insitututional asset managers is now available. This includes a detailed examination of the wider economic and financial implications of the crisis. IIE_Covid_19_Cutting_Through_the_Noise_2020_04_15.pdf
Below, we also share some views from Dr Bob Swarup, the co-Founder of the Insurance Investment Exchange, on how the crisis has impacted the markets and insurers so far. We will supplement this with regular summaries of the news that matters to you: the response of national and regulators, the views of ratings agencies and major news from insurers so you have a clear view of the competitive landscape too. Please keep your eyes peeled and our website refreshed.
A Q&A with Bob Swarup
Q. Clearly there are many impacts on insurers. What are the key ones and are there any not obvious yet?
I would say insurers have been calm on the portfolio side so far, watching the markets and trying to understand what this all means.
“The key big fears I would say are: Does this become a deeper debt crisis, in which case there is contagion into the fixed income heart of the insurance portfolio?
“This is a rare double whammy for the general insurance and specialty lines market. They will have significant claims, the prospect of extended litigation as people argue over force majeure clauses, and a hit to the asset side as spreads have blown out. The danger is of a steady attrition across lines and a steady bleed across asset classes, all aggregating into a significant balance sheet hit at the top level.
“in the long run, the accentuation and doubling down on lower for longer has to be a serious concern. The business model was already challenged before. Now it is even less attractive.
“I would say sovereign risk is also greater now, given the increased fiscal burden there, which will give some insurers pause for thought”.
Q. Among the greatest risks faced by insurers is there any scope for mitigation?
“It's too late for credit hedging, and insurers were never fond of negative carry in any case. The most important mitigate now is a forensic tracking of weak and problem credits to proactively manage exposures and potential downgrades or defaults. This is also important given the reduced liquidity in the bond markets in recent years.
“On the private side, prices have not moved yet because of stale pricing. But there will be pain beneath the surface and it's important to note that real estate is a key underpinning of much of the illiquid credit held by insurers. Understanding exposures and stress testing will be important.
“Longer-term trends should also be charted and analysed. Past the initial shock, this will have likely a longer lasting impact on demand, on online vs bricks, on greater restrictions on globalisation, on further fiscal support etc. All this is critical to the long-term health and success of insurance portfolios, and arguably more than short-term panic.
“Lastly, there is opportunity. The best defence may well be offense. There are yields increasing now - something the industry has begged for many years. They should be looking to find quality assets and lock them away, provide financing and exits where the security is attractive, and capturing these moments of yield as they arise, because once the panic subsides, we are in for a grind again”.
Q. Are regulators doing enough?
“I think so. They are evaluating the situation, allowing insurers to use capital, and several initiatives have been postponed, which allows insurers to lighten their plates and focus on immediate matters. You don't want them to react with knee jerk shock and awe, as central banks have done. Better to save your ammunition for now and draw down on counter cyclical buffers and other regulatory easing mechanisms as and when you see what the situation is post-panic.”