Investing for Insurers: Review and Preview 2014

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SAA is consistently meeting and discussing issues with insurers, investment managers and others involved in the insurance investment process. What have been the common themes and challenges we hear? And how are various insurers approaching these key issues? What might we expect in the financial markets and economy over the next year? And, how might that impact insurers’ future plans? This session serves as the starting point for the day’s sessions, which are focused on helping you succeed in an increasingly challenging investment environment.

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Investing for Insurers: Review and Preview 2014

  1. 1. Alton R. Cogert, CFA, CPA, CAIA, CGMA President and Chief Executive Officer March 13, 2014 Insurance Investment Forum XIV Investing for Insurers: Review and Preview
  2. 2. Investing for Insurers 2
  3. 3. Investing for Insurers I want you to go to the window, open it, stick your head out and yell: "I'm as mad as hell, and I'm not going to take this anymore." 3
  4. 4. Investing for Insurers More Risk? Diversification Better Execution 4
  5. 5. More Risk?  How?  Interest Rate  Credit  Liquidity  Market Liquidity and Portfolio Choice: A Unified Approach Time Diversification and Horizon-Based Asset Allocations 5
  6. 6. More Risk?  Where?  Bank Loans (aka Leveraged Loans)  Emerging Mkt Debt  High Yield Bonds  Dividend Focused Equities  Various Equity Capitalizations  Real Estate (REITs)  Int’l Equity  Convertibles  MLP’s 6
  7. 7. More Risk?  Where?  Bank Loans  Dividend Equity  Small Cap Growth  Convertibles  EM Debt  PE (Fund of Funds)  Hedge Funds  Infrastructure  Global multi-asset/TAA Eager, Davis & Holmes, LLC Insurance Asset Tracker, Q4, 2013 7
  8. 8. More Risk?  When?  Tactical v Strategic  Mean Reversion  Cognitive Limitations and Biases 8
  9. 9. More Risk? When?  Cognitive Limitations and Biases Making Better (Investment) Decisions 9
  10. 10. More Risk? When?  Cognitive Limitations and Biases 10
  11. 11. More Risk? When?  Cognitive Limitations and Biases 11
  12. 12. More Risk? When?  Cognitive Limitations and Biases 12
  13. 13. More Risk? When?  Cognitive Limitations and Biases 13
  14. 14. More Risk? When?  Cognitive Limitations and Biases 14
  15. 15. More Risk? When?  Cognitive Limitations and Biases 15
  16. 16. More Risk? When?  Cognitive Limitations and Biases 16
  17. 17. Investing for Insurers More Risk? Diversification Better Execution 17
  18. 18. Diversification  Efficient Frontier 18
  19. 19. Diversification  Efficient Frontier  Asset returns normal?  Correlations fixed?  All investors rational?  If everyone did it? Which Strategic Asset Allocation Model is Best? 19
  20. 20. Diversification  “Modified” Efficient Frontier  Regime shifts Regime Shifts: Implications for Dynamic Strategies 20
  21. 21. Diversification  “Modified” Efficient Frontier  Factor Based Investing  Risk Parity Portfolios Diversification: Still the Only “Free Lunch”? 21
  22. 22. Investing for Insurers More Risk? Diversification Better Execution 22
  23. 23. Better Execution  Active v Passive Investment  Efficient Markets Hypothesis v Irrational Exuberance Nobel Contradiction: Fama v Shiller 23
  24. 24. Better Execution  The Real Cost of Investment Management Investment Management Fees Are (Much) Higher Than You Think 24
  25. 25. Investing for Insurers 25
  26. 26. Investing for Insurers 26
  27. 27. Investing for Insurers 27 More Risk? Diversification Better Execution

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