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Can you please tell us a little bit about your professional background and your current area of expertise?
I have 19 years of experience in Financial Services industry. I worked in various roles, both on the sell side and buy side, the common feature was bridging the gap between assets and actuarial liabilities sides of insurers’ balance sheets. In my current role with Legal & General’s Retirement business I have headed the Investment Risk team, as well as involved in designing balance sheet structuring solutions for L&G UK, American and Canadian markets.
Do you think the end of a credit cycle will significantly impact investment portfolios in the insurance industry?
I am more familiar with the UK / European insurers and regulations than the US. Generally, most of the UK insurers are large, well-diversified entities where credit risk is diversified with other risk factors. Having said that, most of them hold significant fixed income portfolios backing annuity liabilities. These reserves, through Matching Adjustment mechanism, would be largely immunised against spread widening. Insurers would be able to match most of the reduction in market value of assets with reduction in technical provisions.
A hit to an insurer’s capital position would come from credit rating downgrades, but it would be relatively moderate as long as assets remain Investment Grade. For assets downgraded deeper, below BBB- rating, the Matching Adjustment mechanism breaks down and an insurer would have to reflect full reduction to market value as a hit to their Solvency II position.
Another potentially concerning factor for some companies might be property prices, for those insurers who have large property exposures on their balance sheets. These exposures can be either direct or through lending to organisations with high exposure to property, or where property is used as a security on a loan to give uplift its credit rating.
So, overall, I think the impact will be mixed. Those insurers who were disciplined in their pricing and investment portfolios and have avoided exposures to borderline BBB- names, pro-cyclical sectors, high LTV mortgages or lending secured by properties in pro-cyclical sectors or in locations where it will be hard to replace a tenant, would fare well.
US market is very different from Europe. Annuities, including Pensions Risk Transfers, are as competitive as in the UK and structured credit assets are much higher proportion in the US pricing portfolios than in Solvency II jurisdictions. A lot would depend on whether the rating agencies, the regulator and the insurers have successfully learnt the lessons of the last financial crisis and have adjusted their investment and credit rating criteria to withstand the next stress.
Can you please explain your focus on equity release mortgages and why insurance companies would want to invest in this type of asset?
Interest payments on equity release mortgages are a function of borrower’s longevity, and as such provide a natural longevity match for annuity liabilities. They also require material investments in setting up origination and distribution support infrastructure, providing a barrier to entry. A life company wishing to use equity release mortgages to back the annuity technical provisions would also need to restructure the assets via an internal SPV to make them eligible for the Matching Adjustment Benefit. Another important consideration is that an insurer would struggle to dispose of these assets in future if it needs to do so for whatever reasons. All of this means that the asset currently offers attractive returns, on a risk adjusted basis, compared to some other more common credit asset classes.
What would you like to achieve by attending the Marcus Evans 9th Edition of Insurance Asset Management?
I look forward to learning from peers in other companies about the opportunities and challenges they are seeing in the current complex market environment. I would also like to broaden my professional network especially beyond annuity products which is my main focus.
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An interview with:
Grigory Spivak, Head of Investment Risk, Retirement at Legal & General
A decade on from the financial crisis, the market has entered very interesting times as the industry moves towards the end of the credit cycle and a number of topics on the political agenda take precedence. With the end of the credit cycle in sight and geopolitical risk on the rise, firms will want to take a safer stance with investment strategy. Firms also have the added complexity to meet yield targets under the persistently low rate environment and Solvency II rules and in order to do this they have turned to investing in alternative assets. Alternative assets have become increasingly desirable with their ability to give higher returns, but this comes at the price of higher risk.
With all this in mind, this marcus evans conference will look at how to build an insurance portfolio that accommodates market changes as the industry moves towards the end of a credit cycle and prepares for geopolitical risk.
To view the Conference Agenda, click HERE!
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About the conference
We would be delighted to provide you with more information on the conference agenda. Please fill in your details below and we will be in touch.
To view the Conference Agenda, click HERE!
For all enquiries regarding speaking, sponsoring and attending this conference contact:
Yiota Andreou
Email: Yiotaa@marcusevanscy.com
Telephone: +357 22849 404
Fax: +357 22 849 394
