From small roots to great leaps

Wade Meadows and Anjanette Fowler of PNC IAM’s Insurance Solutions share their thoughts on the changing captive landscape and how PNC IAM has kept pace with those changes to serve clients’ evolving needs.

Growing from its roots as a regional bank serving primarily the Mid-Atlantic to a full-service coast-to-coast financial services organisation, PNC has not been limited to its brick-and-mortar footprint. An evolution of product and service offerings across the enterprise includes captive insurance advisory solutions offered by PNC Institutional Asset Management (PNC IAM).

“Our clients are focused on making sure the capital in their captive is working for them.” Wade Meadows

What differentiates PNC IAM’s captive expertise and solutions?

We offer a bundled solution that is unique in the industry. Starting with our team of actuaries and our enterprise financial modelling capabilities, we provide clients with an outsourced chief investment officer (OCIO) platform that is consistently ranked among the top 20 in the nation.

Since insurance portfolios are predominately fixed-income, we use PNC Capital Advisors, which has been named Manager of the Decade in the short-duration sector. All of this is delivered by a specialty team of investment advisors who work only with insurance companies. Adding to our expertise is the fact we serve as a fiduciary and have our own custody capabilities, including access to Clearwater Analytics.

What are the most pronounced changes you have observed?

One of the most pronounced changes is the overall interest and focus on the industry. We have clients across every industry imaginable using captives as an effective part of their risk management programmes.

“Extending the yield curve or duration risk should reward fixed-income investors more.” Anjanette Fowler

What trends are top of mind for PNC IAM’s clients?

Beyond the persistent hard market pressures, our clients are focused on making sure the capital in their captive is working for them. The changes in Federal Reserve rate policy resulted in some of the highest yields we have seen in almost 20 years. This has clients focusing on capturing and locking in those rates to maximise investment income.

As we enter what is seemingly the early stages of a shift in Fed policy with the recent rate cut, clients are preparing for an expected lower yield environment going into next year.

How is PNC IAM helping clients stay ahead of those trends?

The team is active in almost every captive domicile, and team members frequently speak at industry conferences. Anjanette serves on the board of directors for the Captive Insurance Companies Association (CICA) and has a front row seat to captive trends.

How would you describe PNC IAM’s approach to enterprise financial modelling?

Our approach is to understand the various risk lines a company puts in its captive. We want to understand per-event and aggregate risk retention levels to maintain necessary liquidity. Overlaying the high-low severity, high-low frequency, and short-long tail claim conversations enables us to manage more effectively “reserve matching assets” and “capital growth assets surplus” to optimise the portfolio for long-term success.

How can captives broaden and diversify their portfolios?

In our view, the most important first step a captive owner should take in considering how and where to diversify their assets for income and return growth is understanding their capacity for risk or their investment risk budget. We help clients assess that through our enterprise financial modelling process, so they and we know whether their capital positioning is strong enough to bear equity market volatility, for example, or liquidity risk in a higher-income-generating alternatives allocation.

Does the captive have the capacity to extend its portfolio duration if the market is paying them greater yield to do so? We are seeing some normalisation of what has been one of the longest inverted yield curves on record, which indicates that extending the yield curve or duration risk should reward fixed-income investors more.

What is the top piece of advice you would give to a company looking to start a captive?

Surround yourself with industry specialists and ask a lot of questions. You want to deal with a solution provider who is well-versed in the nuances of captives and is working in concert with their other service providers to ensure everyone is rowing in the same direction.

What is the biggest emerging risk?

The talent shortage. The industry is working hard to fill the talent void, but it’s not fast enough to meet the current demand and new formations. CICA’s NextGEN and Risk Management Society Emerging Leaders initiatives are great programmes that are making inroads on this front.

PNC has an Analyst Development programme that brings young professionals and recent graduates into the industry.

How is PNC IAM helping clients hedge against market volatility?

We believe a captive that is employing an approach of portfolio construction that is appropriately risk-diversified across non-correlated assets aids in mitigating the financial impacts of market downdraft in a particular asset class or sector.

What benefits does partnering with PNC provide to clients?

Companies going down the captive path will find themselves in a highly regulated industry. Our job is to enable our clients to sleep at night, knowing that they are dealing with an experienced team in the space that looks at their investment programme holistically through a liability-driven lens to help ensure their assets support their reserves and liability retentions appropriately, while still seeking to optimise investment income and return potential.

Wade Meadows is head of PNC IAM’s Insurance and Specialised Industries Group. He can be contacted at: wade.meadows@pnc.com

Anjanette Fowler is managing director of PNC IAM’s Insurance Solutions. She can be contacted at: anjanette.fowler@pnc.com

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