7 March 2023Analysis

CICA: investment strategies going back to the future

Captive insurance companies will have to consider their asset allocation strategies in the wake of recent developments in the US economy.

A panel of experts at the 2023 CICA annual conference in California pointed out that after years of low interest rates, and therefore low investment yields, recent efforts by the US Federal Reserve (the Fed) at fighting inflation have led to a sudden rise in interest rates.

Speakers at the panel session, titled ‘Back to the future’, pointed out that the Fed had tightened its monetary policy to the highest level since the 1980s, one of the last periods of high interest rates to battle inflation.

Panellists included Anjanette Fowler, managing director and senior vice president at PNC Institutional Asset Management, Gregory Cobb, director/insurance solutions at Sage Advisory Services, Gary Osbourne, vice president at Risk Partners, and Travis Terzer, head of business development at CapVisor Associates.

Fowler said that in 2022 there had been nowhere to hide for many investment portfolios, describing it as a ‘real rough patch’, adding that in the past insurance companies of all kinds used to earn income from investment. However, that has not been the case for some time, due to the low interest rate environment in the wake of the 2008/09 financial crisis. This might now be changing.

The panel said that alternative investments are also becoming more popular at the moment, still being a minor and not major part of portfolios, but certainly helping to smooth out returns.
The panel also said that the indications are that there will be a US recession at some point, but that some indications as to when it would happen were mixed.