Mar 6

What to Expect at Insurer Investment Forum XI


Every year, SAA hosts the only investment conference of its kind, a place where CEOs, CFOs and CIOs of insurers writing all types of business get together to discuss issues most important to them.

In addtion, the conference features some interesting speakers and topics.  This year’s topics are noted below with some links in which you might be interested.  Whether you can attend or not (and we only have a few open chairs remaining in the conference room), I think these topics may be of interest to you:

The Changing Financial Landscape

This goes beyond the Greatest Deleveraging followed by the Greatest Releveraging in the history of the world.  It strikes into the heart of the reaction of regulators, rating agencies, governments, and financial institutions.  Our friends at E&Y touched upon this in a paper describing Global Megatrends 2009 .  But, as a generic paper, it missed the more direct impact on insurers:  The long arm of Federal regulators have only started their incipient power grab over state regulation of insurance with the establishment of the Federal Insurance Office.  Under the much maligned Dodd-Frank Bill, the FIO is charged with “ studying and reporting on how to modernize and improve the system of insurance regulation in the United States.”  Talk about loaded language.  Meanwhile, the rating agencies are in the rather tenuous position of saying that their ratings are only ‘opinions’, subject to the free speech provision of the US Bill of Rights.  Yet, how many investment policies rely to a great extent on these mere ‘opinons’…a sobering thought.  And, let’s not forget the continuously bulging size of the Federal Reserve’s balance sheet , which reminds me of the Monty Python character, Mr. Creosote, who ate and ate, until, well let’s just hope the Fed does not end up in the same predicament.  So, the landscape has changed and is continuing to change all around us.

Risk Management and Corporate Governance

Back in 2004, COSO entered the Enterprise Risk Managment fray with a well thought out paper outlining ‘best practices’ for risk management.  Undoubtedly, all of the largest corporations and many of the medium sized and small ones took notice.  But, if COSO ERM was the paragon of virtue, perhaps something was missing when applied to risk management at the largest of US financial institutions, or even BP, for that matter?  The National Association of Corporate Directors has outlined the ten principles of effective risk oversight .  But, why only ten?  And, what can we learn from risk management during the corporate governance of both insurance and non-insurance institutions.  During IIF XI, Dr. Robert Mark will discuss how Black Diamond Risk approaches this process.

The Muni Bond Market – Opportunity or Peril?

There is little doubt that states and municipalities face some of the most difficult financial challenges in our history, thus casting a shadow over the usually sleepy municipal bond market.  Whether your company is invested in” tax-exempt” or “taxable” municipals, understanding the challenges of this market from both a strategic and tactical viewpoint is essential.  Barron’s recently highlighted “How to Play the Panic in the Muni Market.”  Conversely, we are aware of some insurers who have trimmed their muni exposure primarily because of the uncertainty about municipal finances and the basic fact that many municipal bonds are not even required to be registered with the SEC (a little emphasized fact).  Although the SEC is trying to change this.  Making both the correct tactical and strategic call will be discussed at IIF XI by Jim Dugan of Brown Advisory.

The Inflation versus Deflation Tug of War

Although some may say the answer to the Inflation versus Deflation tug of war is simply to buy silver, gold or other precious metals, this is usually not a viable alternative for an insurer’s core portfolio.  Thus, the question remains and it directly impacts the amount of interest rate, credit and other risks your portfolio should contain.  But, we have inflation (commodities) at the same time we have deflation (home prices), further confusing the issue.  Michael Temple of Pioneer Institutional Asset Management will have the unenviable duty of making sense of this dichotomy and the related uncertainty at IIF XI.

Behavioral Finance and Your Decision Making

Finally, and perhaps the most important activity we face every day, is the act of decision making.  Alas, we humans are imperfect creatures and our decision making is not always completely logical nor lucent.  And this imperfect nature of humans may or may not be an advantage in different situations.  In other words, we tend to make some rather common mistakes.  Richard Friesen of Market Psych has seen these and other decision making challenges within the business of investment management.  He will share the results of his firm’s research and opinions and let us know how to make better decisions in our work.

I hope this brief summary has been of use.  Please feel free to click on some of the links that relate to topics of interest and, as always, please feel free to comment by clicking on the “What do you think?” link below.

Thank  you.