Insurance CIOs eye nimbler investment approach
Politics has taken a front seat in insurance firms’ investment decision-making thanks to the uncertainty over US policy under Donald Trump and around upcoming elections in Europe.
And amid the unprecedented levels of uncertainty, some investment heads at Asian insurance businesses would like to be able to change allocations more quickly, speaking on a panel at AsianInvestor’s Insurance Investment Forum yesterday.
Difficulties rising
Paul Carrett, group chief investment officer at Hong Kong-based FWD Insurance, said: “[Take] the old dictum – buy when there’s blood on the streets; it feels like we’re pretty close to that. Mr Trump spoke of carnage in his inauguration speech, and yet markets responded by rallying much higher.
“So it’s a curious world we live in, and the rates markets are no different from what we see in equity markets in terms of volatility and uncertainty,” he added. “Of course, everyone in the world is facing uncertainty, but this is a trickier situation than I can think of in maybe a decade.”
When it comes to Trump’s impact on markets, noted Carrett (pictured left), “it’s a question of politics driving the economics rather than the other way around”. There has always been a political dimension to insurance investment decisions, he said, but the importance of that element has grown.
Moreover, given that many risk markets – such as US equities – have soared since the American presidential vote on November 8, he added, it has become harder to find alpha.
Trump’s election was not the first big shock in recent times, noted Jeffrey Tan, director of investment and corporate finance for Asia at Ageas, also speaking on the panel. He pointed to the controversial approach taken by Philippines president Rodrigo Duterte and Britain’s vote to leave the European Union.
However, he said, “with the Trump event, things get a lot more difficult to manage in terms of possible unexpected shocks.”
Cautious approach
Some of the panelists said they were taking a careful approach in light of the uncertainty.
“We’ve been cautious because we feel the markets front-loaded some of the effects that are coming” said Mark Konyn, group CIO of Hong Kong-based insurer AIA. “We’re waiting to see how things settle down and until we start to see stronger patterns emerge in terms of policy decisions.”
There were suggestions that some of the fear over the political landscape in Europe is overdone. Boris Moutier, Asia CIO at French insurer Axa, said the investment community is worried about the possibility of Marine Le Pen winning the election, but argued that the market may be pricing that probability too high.
“You need 18 million votes to be president in France – and the biggest she ever achieved in other, less important elections is 8 million,” noted Moutier. “So we think the fear is a bit exaggerated.”
More nimbleness needed
Something the panelists seemed to agree on was that greater nimbleness would be useful when it came to making allocations in the new environment.
Carrett argued that the insurance industry in Asia was not set up to move quickly when it came to new investments and could generally have done a better job in that regard.
“I’m not saying we need to be hedge funds – not at all – but as responsible investors, we need to be a bit more opportunistic than we have before,” he said. “We need more of a trading mindset in this environment. It’s difficult; it’s not in the DNA of the industry, but it’s probably something we’re getting better at.”
Konyn was in broad agreement, but he suggested it came down to the issue of execution. “I don’t think insurers are slow-moving because they can’t make decisions; they’re just very thorough in how they make decisions,” he said.
Insurers should take advantage of the links between the risk, investment, finance and actuarial departments – as well as using technology – to be more nimble in execution, Konyn argued. “I think it’s more about execution than the decision-making itself.”
New types of assets, in particular, are often harder to get approved, noted Ageas’s Tan, pointing out that some alternative investments have little or no past history. He suggested that there needed to be a change in mindset when it came to new products.