Q4 Recap & 2023 Expectations:
Key Financial Market Issues for Insurers & Risk Pools
Alton Cogert, CFA, CPA, CAIA, FDP, CGMA, President & CEO, Strategic Asset Alliance
Dan Smereck, Managing Director & Principal, Strategic Asset Alliance
Alton and Dan highlight SAA's review of the fourth quarter in 2022 and what we might expect for 2023 in the financial markets. Highlighted in this ~11 minute video include reinvestment yields, the state of fixed income markets on insurer/pooling portfolios, and comparing expecations for the Fed vs the markets.
Key Takeaways
- Fixed income allocations will continue throughout 2023 to generate materially higher earned income per dollar of reinvestment leading to higher book yields across all core fixed income portfolios..
- Average reinvestment yields across investment-grade fixed income sectors are between 5%-6% and more than double (or higher) from 12/31/2022.
- The Markets are skeptical of the Fed’s position; so, follow the data, especially the labor markets, and expect rates and reinvestment yields to remain elevated in 2023.
- With fixed income reinvestment yields double or triple what they were just a year ago, the opportunity cost of holding cash and cash equivalents has been significantly diminished. With rising claims payments and reinsurance premiums, having additional liquidity may be prudent in 2023 with minimal opportunity cost as short-term yields move toward 4%-5%.