USA insurers have been left relatively unaffected by the widening spreads and bond downgrades of H1 2020 thanks to their own risk management as well as the Fed’s intervention, according to Sarah Williams, managing director and head of enterprise risk management at Global Atlantic Financial Company.
Williams will speak at Insurance Asset Risk 2020 Americas event, which is being held virtually this year, on a panel on credit markets and spread risks.
Speaking to the magazine ahead of the event, Williams said insurers’ cautious nature, which leads them to hold a diversified and high quality portfolio, combined with the Fed’s response to the COVID-19 crisis has limited the impact of the H1 2020 turbulences on US insurers.
“For those with liquidity and able to take advantage, widening spreads actually became a benefit by providing insurers an opportunity to shift towards high quality liquid names where previously spreads had been at much tighter levels,” she commented.
Insurers who had locked in when the spreads were at wider levels gained an advantage as the Fed’s stimulus allowed interest rates to rally, causing a price accretion.
Typically, ALM strategies are based on a long-term asset allocation model with a view of the whole market, looking at factors such as credit risk, interest rate risk, liquidity risk, and capital risk. “That said, during a crisis, there tends to be some shift towards a more tactical allocation, such as taking advantage of wider market levels,” Williams said.
“The biggest risk we see from here is a second wave of downgrades, if there is not a demonstration of recovery in underlying businesses,” she warned.
Insurance Asset Risk Americas will be held as a virtual conference this year due to COVID-19. The conference will take place on 22 and 23 of September, more details can be found here.