Improved P&C investment returns in 2012
Risk managers have seen improved investment returns in property and casualty (P&C) sectors across the first half of 2012.
But captive owners are warned against being overly cautious or not focusing on the asset side of their balance sheets, and missing out on large investment return profits.
Fixed interest statistics show the weighted average US dollar returns in the six months to June 30 2012 are at 1.85%, compared to 2.20% for the whole of 2011, reports analytical services company Camradata.
However, Carl Terzer, principle of US insurance investment advisor CapVisor Associates LLP, said that according to his figures returns have been higher than this.
Sterling portfolios have also improved in this area. On average, they achieved 1.61% to June 30 compared to 2.92% for all of 2011.
Due to fears of the current low investment rate environment ending shortly, some investment managers are shortening investment durations.
This is because the bigger the duration, the greater the interest-rate risk or reward for bond prices.
Terzer said: “The low investment rate environment is expected to continue for at least a year so risk managers need to make sure they have done their homework on optimising their asset allocation.
“Captive owners need to make sure they don’t leave a load of return on the table by being too conservative with their credit risk or with their portfolios.
“Liabilities are only half the balance sheet. Assets are just as important. On the assets side people are losing hundreds of thousands of dollars because they are putting too much focus on liabilities and not enough on assets on a balance sheet.
“I think most risk managers will be safe assuming 2013 rates will remain pretty close to where they are now,” he said.
Sean Thompson, Camradata analytical services client relations director, said: “All the indications are that 2012 is on course to see improved investment returns for P&C insurers.
“Other headline figures show a marked divergence in performance which we believe is a reflection of different investment policies rather than the volatility of markets.”