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March Seminar Poll Results – Voting for Volatility

Posted March 21, 2017

Volatility remains the top concern of insurance CIOs, according to a poll taken at the recent Insurance Investment Exchange seminar on 7th March entitled ‘Quo Vadis: understanding and managing the macroeconomic environment for insurers’.

Asked what their key concern was for the year ahead, almost half said volatility and the growing risks in the bond market were at the top of their list with a further quarter citing the growing demands of regulation (Fig 1).

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Fig. 1

The fallout from Brexit and the growth of populism both registered as concerns but were a long way down CIOs’ agendas in the first week of March. Depending on how the Brexit negotiations progress once Article 50 is triggered, this may change.

If volatility is the top concern of individual CIOs as they survey 2017, for their firms the challenges are more diverse. Given a choice of four options in answer to the question ‘What is your (insurers’) greatest challenge today?’ the audience split three ways (Fig 2).

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Fig. 2

While you might expect CIOs to highlight ‘Finding capital efficient strategies and assets’ and ‘Finding alternative sources of yield’ as being among the major challenges their firms face, more surprising was the other third who said that the business model no longer works.

This pessimism about the longer term viability of the business model was also reflected in the responses to a later question asking ‘What is the key bottleneck today to creating better insurance portfolios?’ (Fig 3).

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Fig. 3

Just over 30% identified organisational culture as the bottleneck with 40% focusing on the lack of insurance friendly assets as the biggest restriction. However, if you group the answers together under two broader headings, one being external factors and the other internal factors, then the split is 50/50, revealing that many CIOs believe there is a need for insurers to look at their own responses to the post-Solvency II world, especially when it comes to culture and resources.

During the panel debates, several participants expressed frustration at the extended and unresponsive approval processes with the traditional investment committee structures coming in for criticism – see A world of uncertain certainties for a full report.

In terms of the objectives for investment strategies in 2017, there was no consensus (Fig 4), although the acceptance that volatility is becoming the new norm perhaps shows through in the slight edge for ignoring volatility and focusing on longer-term trends.

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Fig. 4

This was reinforced by answers to where the audience expected the greatest increase in allocations over the next two years (Fig 5). Overwhelmingly, it will be in illiquid credit such as private debt and infrastructure, perhaps indicating the cautious flight from more volatile assets and disappointing bonds is gaining momentum.

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Fig. 5

The audience polling is an integral element of Insurance Investment Exchange events and helps shape the programme and choice of speakers for future events. At every seminar, people are asked what they would most like to hear about in the future (Fig 6). With the growing impact of external events on asset values and portfolio strategies, there is as much interest in the bigger picture issues around identifying key risks and emerging macro-economic and regulatory trends as there is in examining the detailed opportunities among specific asset classes.

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Fig. 6

 

The next seminar will be on 13 June and registration is now open. To register, click here

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