2. The 2016 Executive Education Roundtable Series
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3. Questions to be addressed
How do asset allocations vary across the insurance industry?
Why do these asset allocations vary?
What are cost and benefits associated with different asset allocations?
How will potential RBC changes impact life insurance allocations?
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4. Background on industry Data
Data we show is based on YE2011-YE2015 statutory financials
Format for industry data slides:
We show separate slides for P&C and life
At left is a composite of 5 large insurers
Each insurer here today is identified by stat invested assets at YE2015
Five year trends are shown from left to right ( )
Many insurers invest in:
Extended fixed income sectors
Illiquid assets
Other alternative assets
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5. Life overall asset allocation at YE2015
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US. Private bonds are determined based on non-standard CUSIPs and are indicated by “Pvt”. These include investment grade and high yield as shown. NAIC 3-6 bank loans and direct lending held on Schedule D would be included in Pvt Other or Pvt HY Corp depending on the issuer classification.
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6. P&C overall asset allocation at YE2015
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US. Private bonds are determined based on non-standard CUSIPs and are indicated by “Pvt”. These include investment grade and high yield as shown. NAIC 3-6 bank loans and direct lending held on Schedule D would be included in Pvt Other or Pvt HY Corp depending on the issuer classification.
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7. Notes on overall allocations
Privates are “true” private placements and not 144A
Real estate shown is Schedule A
Mortgage loans are from Schedule B
Schedule BA affiliated assets are included—all other affiliated is excluded
HY Corp only includes corporates—there are other NAIC 3-6 bonds
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8. Life yield enhancing fixed income trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US. Private bonds are determined based on non-standard CUSIPs and are indicated by “Pvt”. These include investment grade and high yield as shown. NAIC 3-6 bank loans and direct lending held on Schedule D would be included in Pvt Other or Pvt HY Corp depending on the issuer classification.
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9. P&C yield enhancing fixed income trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US. Private bonds are determined based on non-standard CUSIPs and are indicated by “Pvt”. These include investment grade and high yield as shown. NAIC 3-6 bank loans and direct lending held on Schedule D would be included in Pvt Other or Pvt HY Corp depending on the issuer classification.
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10. Comments on yield enhancing fixed income
We include assets with high all-in yields or attractive spreads
Most non-agency RMBS and CLOs are NAIC 1
Life specific:
CLOs are extremely capital efficient relative to spreads
Most large life insurers have significant private placement allocations
Some private high yield is senior direct lending on Schedule D
P&C specific:
Those with CMLs are often associated with a life insurer
High yield allocations are small even though they are very capital efficient
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11. Life risk asset allocation trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US. Risk assets consist of common and preferred stock (shown as public equity), bonds rated NAIC 3 through 6, and schedule BA alternative investments.
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12. P&C risk asset allocation trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US. Risk assets consist of common and preferred stock (shown as public equity), bonds rated NAIC 3 through 6, and schedule BA alternative investments.
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13. Life public equity allocation trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US.
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14. P&C public equity allocation trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US.
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15. Comments on risk assets and public equity
Risk asset allocations have been fairly steady over the past five years
The category Sch BA Alts excludes non-alternative assets from Sch BA
Most insurers in this audience do not allocate to Schedule BA alternatives
This audience has much larger allocations to public equity than our large company composites
Potential GAAP accounting changes may make public equity less attractive for public insurers
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16. Life commercial real estate exposure trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US.
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17. P&C commercial real estate exposure trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US.
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18. Life illiquid asset allocation trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US.
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19. P&C illiquid asset allocation trend
Source: SNL Financial. All data is based on U.S. statutory filings and excludes insurance companies and assets domiciled outside of the US.
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20. Comments on CRE and illiquid assets
Most commercial real estate exposure is through debt
Real estate equity is RBC inefficient for life insurers
Large insurers have much larger exposures to illiquid assets than small insurers
Private and illiquid equity allocations have remained relatively flat
Commitments have increased in recent years
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21. Proposed changes to Life RBC
Under current RBC:
A-rated credit is quite capital efficient
HY is not very capital efficient
Under new RBC:
HY capital charges will go down in many cases
Commercial mortgage loan (CML) capital charges will remain unchanged
RBC efficient portfolios will be very different in the future
Investment Grade RBC Charges (%)
AAA
AA+ AA
AA- A+ A A-
BBB+
BBB
BBB-
Current Charge
0.30
0.96
Proposed Charge
0.25
0.53
0.86
1.10
1.24
1.48
Change
-0.05
0.23
0.56
0.14
0.28
0.52
High Yield RBC Charges (%)
BB+ BB
BB- B+ B B-
CCC+
CCC
CCC-
< CCC-
3.39
7.38
16.96
19.50
2.62
3.24
4.14
4.42
5.80
7.60
12.77
-0.77
-0.15
0.75
-2.96
-1.58
0.22
-4.19
0.00
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22. Wrap up
Despite what may be in the news, industry asset allocations just aren’t changing that much
Relative to large insurers, the insurers in this audience:
Invest much less in capital efficient extended fixed income sectors
Allocate more to public equity and less to alternatives
Have smaller allocations to illiquid assets
Changing RBC charges could result in very different portfolios over time
Companies may reduce A-rated credit for a mix of BBB or lower corporates, Treasuries & Agencies, and CMLs.
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THE 2016 EXECUTIVE EDUCATION ROUNDTABLE SERIES