Investing for Participating Products ASHK Joint Regional Seminar Back to Basics - Evolving Technical Matters Angelina Lai Date: 27 July 2016 PUBLIC
Contents Participating products in a nutshell Investing for Participating products – the different facets – today’s challenges – “new” ways 2 PUBLIC
Investment return – a key driver in the competitiveness of a participating policy Policyholder Dividends Shareholder’s share of profit Guaranteed Return to Insurance policyholders Profit Investment Return Policy Shareholder Premium Capital 3 PUBLIC
Investing for Participating products – the different facets Medium Term Dynamic Asset Long Term Strategy Opportunities (Tactical Allocation (Strategic Asset Asset Allocation) Allocation) Stop loss / triggers Other Property Govt bonds Hedge fund Short term structures Private equity Tilts between asset classes Corp bonds Thematic positions Tilts within asset classes Listed equity Access niche / new assets Private debt Asset Management Performance approach management Scorecard – benchmark / alpha In house management vs outsourced (internal vs external) / vol Remuneration Active vs passive Changing styles Level of control 4 PUBLIC
Traditionally, the SAA had been simple… 5 PUBLIC
Challenges of investing for Participating Policies today 6 PUBLIC
Investing for Participating Policies in todays’ world Valuation Stability Income Risk Adjusted Return Stability Return Policyholders’ Reasonable Expectations Transparency Diversification Inflation Lack of protection liquidity? 7 PUBLIC
Through the looking glass – Risk Premia Credit • Risk of default, MTM of credit spread (where unmatched to liability) Equity • Price volatility, risk of corporate default (bottom of capital structure) Term • Uncertainty due to having to hold asset for a period of time, mismatch to liability Illiquidity • Uncertainty due to not being able to sell the asset quickly Inflation • Risk of higher than expected inflation eroding real returns, or lower than inflation that is priced into policies Insurance • Risk of losses arising from unexpected extreme events Skill • Manager risk 8 PUBLIC
“New” drivers of investment return Skill Iliquidity Inflation Insurance Sustainability Less frequently Alpha as a return “Ultra” long term traded Linked to driver underlying economic growth Theoretically Diversifying from Stable valuation Difficulty of would reflect real traded market risk by design achieving alpha economic growth over long time horizon E.g. private “Feel good factor” strategies Difficulty of Investing for the selecting skillful long term Access to larger managers investment Broad definition universe Past performance Concentration or vs future Young market for diversification performance? Non-standardized investment Typically publically against own funded – difficult liability to gain access to Less agile in Difficult in gaining Expectations of investments responding to access to alpha shocks investments 9 PUBLIC
Examples of “new” asset classes being sought by Participating funds Asset Class Real Estate Infrastructure Private Debt / Equity Debt / Equity Credit / Equity • • • Core: Office / Industrial / Retail / Power / renewables Direct lending / specialty Example • Residential Energy finance assets • • • Value add: distressed, land Transport Distressed / opportunistic • development Social: hospital, school, debt • • Mortgage loan book retirement homes Private equity funds Typically yes for core Typically yes for brown- Stable income strategies field debt Stable valuation Return Diversification against trad port Long duration liability Transparency Improving Improving Improving 10 PUBLIC
Thank you! Questions? 11 PUBLIC
Recommend
More recommend
