Daniel Becker, head of insurance investment and ALM at Hymans Robertson, explains the consultancy's expertise in the insurance asset management sector, and why there are plenty of positive signs for the insurance sector in 2021
What have been Hymans Robertson's key achievements in the insurance asset management space in 2020?
Despite all the challenges of Covid-19, and the operational impact of working from home, our key achievement in 2020 was helping our clients on a wider range of work than ever before.
Much of that work related directly to the impact of the pandemic on our clients' assets. We have always supported our clients in relation to investment strategy, including diversification into private assets. This past year was perhaps the first true test of insurers' private debt portfolios since Solvency II came into force.
We have been helping our clients to get a handle on what is going on in their portfolios, including addressing requests for forbearance from borrowers in Covid-impacted sectors, while also dealing with increased regulatory scrutiny. We are also helping our clients to identify the opportunities post-Covid.
How optimistic are you about the outlook for the insurance sector in 2021?
The ALM positioning of most insurers going into the market shocks we saw last March proved to be resilient. We saw that in the reported numbers at half-year 2020.
Covid-19 has flushed out and accelerated sectoral trends that were happening anyway. That's clear when you look at how different sub-sectors have performed. For example, the varied impacts and outlooks for different types of commercial real estate.
Insurers have more experience to draw on – Covid-19 is now, at the very least, a known-unknown. And there have been political changes, particularly in the US, which could provide much needed stability.
One thing many insurers will welcome from a Biden presidency is a re-alignment of US political thinking with the broader mainstream, particularly around climate change.
That alignment will see opportunities emerge for investment in green finance.
More broadly, insurers are continuing to expand their investment horizons in terms of the asset classes they consider. Generally, insurers are doing this in a way that builds on their existing capabilities and expertise, and in a measured way.
What trends are you seeing in terms of ESG investment considerations?
We are seeing a lot of activity in all areas, including work to develop and strengthen policies and governance, with concrete actions to embed environmental, social and governance (ESG) factors into investment decision-making.
Climate change is, of course, a key concern. And we have seen, and will continue to see, progress in relation to climate-related disclosures. We are heartened by the commitments many of our clients have made to reduce the carbon footprint of their investments and, ultimately, push towards net-zero.
We have also seen plenty of focus on other aspects of ESG. Notably, we have seen clients turn down deals that make sense purely in terms of financial metrics, but that do not align with their social objectives and beliefs. This recognition that insurers cannot stand apart from society, and can be positive agents for change, is a cause for optimism.
Is divestment or client engagement the way forward with high carbon emitting companies?
This is a topic we have discussed a lot internally and with clients. In my view, it is absolutely key to try and use the power our clients have as institutional investors to influence positive change. There is an argument by divesting you are selling to the next person who perhaps does not share the same principles and may not engage.
It is also not necessarily a question of targeting the high emitters, but about identifying those that are failing to take the necessary steps towards a low carbon future.
At the same time, I think the threat of divestment needs to be there and can have real power where there is collective will. There is also a risk management aspect here. Asset sales may be merited where there is excessive exposure to transition risk. For example, to future carbon taxes.
