26 September 2023

Insurance Asset Risk Americas 2023 conference round up

This year's annual Americas conference started with a note of optimism about the macro-economic outlook for the year ahead. With audience polls revealing delegates thought a soft landing was achievable and inflation would fall.

However, Pooja Rahman, chief risk officer at Transamerica, warned that we are "nowhere close to being out of the woods yet". With panellists hinting that it might be too late for insurers to take advantage of high interest rates.

The audience heard presentations from asset managers AB and Angel Oak Capital on the virtues of investing in private credit and residential mortgages.

Yet the investment leaders panel hinted that at the moment public markets hold more sway for chief investment officers.

"There has been a slowing of the flow into alternatives and private markets and publics have become a bit more attractive," David Czerniecki, chief investment officer at Nassau Financial Group, commented.

He also highlighted the CLO space as a hot investment at the moment.

The so-called 'backlash on ESG' was mentioned in a number of sessions, with mixed reactions from panellists and audience alike. Most panellists were keen to emphasise that this wasn't a nation-wide issue, and mostly localised to specific geographies.

"At the end of the day this is basically part of political risk," Bill Schwegler, senior director of financial policy at Transamerica, said.

In a keynote speech on AI, Kathleen Birrane, commissioned for the Maryland Insurance Administration, recalled when her brother in-law ignored his own eyes and judgment while driving and blindly following the GPS.

"When can we and when can't we trust the machine, is what we are really struggling with as regulators," she said.

Birrane explained that the NAIC was planning on consulting the market on how they use AI in consumer-facing activities. "Importantly, we are not looking at new laws, but how we can incorporate that in existing legislation."

"It is important that regulators don't pretend to be specialists in AI, data science or actuarial science, because most of us are not," she said. "So, for that reason it is important that we don't be prescriptive [in our regulation] but that we stick to a principle-based approach."

A panel specifically dedicated to regulation tackled the numerous projects currently underway at the NAIC. Schwegler warned that some of the new requirements are an "unnecessary burden" and if "all you have is a hammer everything looks like a nail".

The current volatile market environment is asking tough questions to insurers' liquidity positions. And a panel on liquidity risk highlighted how important liquidity stressing was. However, Amit Agrawal, head of fixed income at Axa XL, said that on the whole allocation wasn't changing. If anything, he said, Axa XL was going up in quality.

The day ended with two panels on challenges and opportunities in private assets and commercial real estate (CRE).

For CRE, panellists expressed their concern over a potential credit crunch in the office space. But they were keen to highlight that no two locations are equal, and whether one looks at rural or urban area the picture is very different. Not only is the current landscape wide ranging across states, within states themselves it can be night and day depending on the location, panellists said.

Sean Bannon, managing director, head of US real estate, at Zurich Alternative Asset Management, said that he completely understood why some were arguing that the slow down in the office space was anything like the Global Financial Crisis of 2008 or the Lehman crisis, but "when you look at the level of occupancy" one should be concerned.

When it comes to private assets, speakers said tighter lending requirements and increased regulatory scrutiny had accelerated the banks' retrenchment in this space, providing opportunities for insurers to step in.