Economics Meta-study with a focus on Financial Services
Lead: Oliver Bettis
Detail: Many actuaries roles require them to be knowledgeable about markets especially during times of crisis. There is value in ensuring that actuaries receive a broad picture of views being expressed on the impact of the COVID-19 pandemic rather than relying on one or two sources. They may however not have the time to gather these views. This workstream will identify a number of macro economists at asset managers, banks, other financial institutions whose economic and market views they would look to follow. The workstream should also express any insights/potential impacts from a life insurance/pension fund/actuarial perspective.
- The economic impacts of COVID-19
Volunteers of the ICAT workstream F&I1 and the Economics MIG have joined forces to produce the following ‘round-up’ of activity which has taken place over the summer.
- The economic impacts of COVID-19: Digest 2
This is the second of regular updates which will be showcased in the ICAT Newsletter which goes out monthly with links on the Economics MIG webpage, so do look out for these.
- The economic impacts of COVID-19: Digest 3
This is the next in the series of regular updates.
Investment impact for Life and Annuity Insurers
Lead: Lizzie Waghorn, Gareth Mee
Detail: Specific evaluation of the impact on current and future direction of life and annuity insurer and reinsurer asset allocation
Outputs: Blog: The Minsky Moment of Fallen Angels Risk
Lawrence Habahbeh, Chair of the Resource & Environment MIG, and member of the COVID-19 action task force on Enterprise risk management and Investment impact for Life and Annuity Insurers, discusses the economic impacts of COVID-19 which demonstrate that, once again, Professor Hyman P Minsky, who long argued that markets were crisis prone, is likely to be proved correct.
Investment impact for Pension Funds (DB)
Lead: Shalin Bhagwan
Detail: Specific evaluation of the impact on current and future direction of defined benefit pension fund asset allocation
- Blog: Impact on Pension Fund Investment Strategy
Shalin Bhagwan, member of the IFoA’s Finance and Investment Board, provides notes for those involved in the stewardship of pension fund investment strategy.
- Capital Market and Economic Assumptions: The potential effect of the pandemic.
Colin Robertson considers such issues and the implications for actuaries in setting capital market and economic assumptions.
The impact of models on investment decisions and procyclicality
Lead: Gareth Mee, Dick Rae
Detail: In an ideal world, insurers, pension schemes and asset managers (on behalf of their investors) can invest through the cycle and do not make knee jerk decisions in a downturn. Action may need to be taken to rebalance portfolios and opportunities may exist to realise value but no-one wants to be a forced seller in the downturn. Sadly, some of the models that we make use of in our industry provoke procyclical behaviour as they show exacerbated falls in solvency (for insurers), unacceptable funding levels (for pension schemes) or poorly planned liquidity protection (for asset managers). We would like to investigate the prevalence of these models and the potential that those in our industry are forced to make poor investment decisions as a result.
- The prevalence of pro-cyclicality in the financial industry
Denis Walsh, Senior Investment Consultant and Insurance Client Segment Leader with Mercer Australia, with input from within the COVID-19 workstream, provides initial observations considering the topic of pro-cyclicality and its prevalence across the financial industry arising from the use of quantitative models.
- The prevalence of pro-cyclicality in the financial industry - Presentation in Actuarial Innovation in the COVID-19 era - May 2021
The Prevalence Of Procyclicality In The Financial Industry- Procyclical Behaviour Through The COVID-19 Crisis - June 2021. Paper by Varun Bajaj, Gareth Mee, Dick Rae, Raj Saundh, Adeline Tan, Pablo Vasquez Lopez, Denis Walsh
Fund Suspensions following Increased Valuation Uncertainty
Lead: Lizzie Waghorn
Detail: A number of authorised property funds have suspended subscriptions and redemptions as a result of Independent Valuers advising they are unable to accurately value a funds properties. The inability to accurately value a funds properties is due to a lack of comparable sales in the market and uncertainty about tenants continued profitability in light of measures introduced to curtail the spread of COVID-19. We would like to understand how insurers and wealth managers are managing such fund suspensions, including the governance process followed and the impact on their customers. This research into suspended funds and company response, will show the latest thinking regarding property valuation and whether Independent Valuers are looking at different valuation methods and to research how such events may impact the future of property and other illiquid funds.
Outputs: Blog: Property: Another COVID-19 Victim
This blog provides an overview of the impact of COVID-19 on open-ended property funds and is aimed at the interested observer within the industry; an understanding of property funds, fund management and insurance is assumed. The views, thoughts, and opinions expressed in this blog belong solely to authors Lizzie Waghorn and David Mitchell of the IFoA's Finance and Investment Board, and do not represent the views, thoughts or opinions of the authors employer or organisation.
Asset class specific
Lead: Gareth Mee
- The impact of Covid-19 on infrastructure debt
This article is authored by members of the IFoA’s Private Credit for insurers working party, and links to the asset class specification work being done as part of the Finance and Investment IFoA Covid-19 Action Taskforce.
- COVID-19 impact on individual assets and balance sheet for Insurers
- The effect of Covid-19 on Private Real Estate Debt
COVID-19 pandemic caused major disruption in the global economy and brought about “the new normal”. In this short article, Private Credit for Insurers Working Party investigates the impact of the pandemic on the CRE debt market and outlook for the future.
Liquidity case study
Lead: Hetal Patel
- Blog: Reviewing your Liquidity Arrangements
Hetal Patel of the IFoA's Finance and Investment Practice Area Board considers the shock to the financial system delivered by the COVID-19 global crisis from the perspective of institutional investment funds.
- Article: Solid Investments
Shalin Bhagwan and Gareth Mee on the benefits and challenges of investing in illiquid assets for defined contribution pension schemes.
Lead: Mahidhara Davangere
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With the Pension Schemes Act 2021 requiring a long term strategy from Trustees and sponsors, choosing a pensions endgame strategy has become even more critical. However, it is important that the endgame options available are adequately assessed before choosing one. With an ever-increasing array of creative and innovative options available, this decision may not be straightforward.
Over recent months there has been a sharp rise in M&A activity involving British businesses, with interest from overseas, domestic buyers and Private Equity investors.
Frank Redington is recognised as one of the most influential actuaries of all time. In this talk, Craig will review some of Redington's most important ideas. He will identify the consistent actuarial principles that form a common thread across the contributions Redington made to a broad range of actuarial fields, and will highlight the ongoing relevance of Redington's thinking to 21st century actuarial practice.
What will happen to DC pension savers who see life annuities as poor VFM but still want an income for life? Pooled annuity funds could offer them a decent lifetime income while reducing significantly the complex choices and risk inherent in income drawdown. They could be the next generation of CDC pension schemes, slotting into the existing DC framework as a post-retirement option.
Investment risk-sharing is a fundamental part of whole-life collective defined contribution (CDC) pension schemes, such as the Royal Mail CDC. But how does investment risk-sharing benefit members? And does it favour some groups of members over others?