Royal London Asset Management's (RLAM) head of equities, Peter Rutter, explains how RLAM can help insurers in the current investment environment, the asset manager's recent achievements and his market outlook for the year ahead
What have been RLAM's key achievements for insurance clients over the past year?
Firstly, we delivered strong performance across our equity strategies, including our flagship Global Equity Select strategy. In addition to performance, we've also delivered a strong service element – supporting insurers by providing timely and focused risk reporting, and with many insurers revisiting their investment strategies in the highly uncertain environment, we delivered strategic asset allocation analysis to help support their decisions.
What challenges do insurers face in the current investment environment?
We believe managing higher inflation will be a major consideration. While some see it as transitory, UK inflation is at levels not seen for two decades, and this will have an impact on the asset and liability sides of many insurers' balance sheets. RLAM has a diverse range of strategies to help mitigate the impact of higher inflation.
We are also expecting significantly more clarity around reviews of Solvency II in both the UK and Europe, which will likely flag changes needed to investment strategies, implementation approaches and oversight frameworks. We'll be keeping a close eye on these and work with our clients accordingly to help evolve their approaches. In my area, there are potential further regulatory incentives for insurers to invest in equities, including a review of 'long-term equity' capital classification and a possible widening of the equity symmetric adjustment.
What areas of investment expertise can RLAM particularly offer insurers?
Our approach has been to build out capabilities where we can feel we can offer something that is differentiated to the market. An example of this is through our active equity solutions. Insurers tend to have low exposure to equities, due to the risk and capital requirements of the asset, which means that it is critical to maximise value around implementation. Our proprietary framework, covering a complete universe of stocks, together with our implementation capability, allows us to deliver portfolios across the entire range of risk budgets – from unconstrained to index enhanced – whilst allowing tailored requirements to be integrated.
At RLAM, we launched our Global Equity strategy in 2017, though the team, investment philosophy and process has largely been in place for more than 20 years at predecessor firms. We now have a successful global equity track record at RLAM, with the benefits of proven longer-term performance (the Global Select strategy has outperformed the MSCI World in 17 of the past 20 calendar years).
What is your investment outlook for insurers this year?
As well as the impact of inflation, we recognise that risk assets such as equities have continued to perform well, and some commentators are worrying about valuations. At the same time, we are seeing a resurgence in geopolitical risk, which we feel markets have generally been quite ambivalent about in recent years. And of course, we are expecting continued spikes in market volatility linked to unexpected developments in the path of the Covid-19 journey. Having an approach that is more focused on bottom-up stock selection – such as our Global Select strategy - with diversification across top-down factors, helps to materially mitigate these risks.
How does RLAM plan to innovate and further improve the clients' experience this year?
Enhanced reporting and risk oversight support generally will be a further focus for 2022. This will be particularly important around climate-related financial risks. With increased importance around responsible investment, we will continue to work with our clients to deliver what they need to appropriately recognise and manage these risks.
Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.
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This is a financial promotion and is not investment advice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.
Issued in February 2022 by Royal London Asset Management Limited, 55 Gracechurch Street, London, EC3V 0RL. Authorised and regulated by the Financial Conduct Authority, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited.
