Tag: Jennifer Johnson

Equity Market Volatility Spikes to Start 2022

Mary Pat Campbell

Link:https://content.naic.org/sites/default/files/capital-markets-hotspot-Equity-Market-Drop-Jan-2022.pdf

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Both economic and geopolitical factors have caused some volatility in the financial markets, including a
recent significant decline in equity markets into “correction territory,” or a decrease greater than 10%.
Equity markets have been declining over the last few weeks after reaching a record high at the
beginning of 2022 when Standard & Poor’s 500 Index (S&P 500) reached almost 4,800. On Jan. 24, the
S&P 500 was down as much as 2% intraday, but it rebounded to finish the day up 0.3%. Volatility
continued into the following trading day, with the index declining 1.2% on Jan. 25.

Author(s): Jennifer Johnson, Michele Wong, and Jean-Baptiste Carelus

Publication Date:25 Jan 2022

Publication Site: NAIC Capital Markets Bureau

Growth in Private Ratings Among U.S. Insurer Bond Investments and
Credit Rating Differences

Mary Pat Campbell

Link:https://content.naic.org/sites/default/files/capital-markets-special-reports-PLR-Rating-Differences.pdf

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The number of privately rated securities reported by U.S. insurance companies totaled 5,580 at
year-end 2021, an increase from 4,231 in 2020 and 2,850 in 2019.
• Small credit rating providers (CRPs) to the NAIC, such as Egan-Jones, DBRS Morningstar, and the
Kroll Bond Rating Agency LLC (KBRA), produced a dominant share of the private letter ratings
(PLRs), accounting for almost 83% of U.S. insurers’ privately rated securities as of Dec. 31, 2021.
• Designations based on PLRs averaged 2.375 notches higher than designations assigned by the
NAIC Securities Valuation Office (SVO) according to data from 2019 through Q3 2021.
• Based on the credit rating analysis conducted by the SVO, the use of PLRs can result in lower
risk-based capital (RBC) charges and potentially lead to the undercapitalization of insurance
companies.
• Regulatory oversight of nationally recognized statistical rating organizations (NRSROs) does not
result in uniform ratings across the NAIC’s CRPs.
• Ten U.S. insurer groups accounted for 55% of the industry’s exposure to privately rated
securities at year-end 2020.
• No significant issuer concentrations of privately rated securities were noted.

Author(s): Jennifer Johnson, Michele Wong, and Linda Phelps

Publication Date:21 Jan 2022

Publication Site: NAIC Capital Markets Special Bureau

U.S. Insurance Industry Outsourcing to Unaffiliated Investment Managers
Unchanged From 2019 to 2020

Mary Pat Campbell

Link:https://content.naic.org/sites/default/files/capital-markets-special-reports-IM-Outsourcing-YE2020.pdf

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The percentage of U.S. insurers that reported outsourcing investment management to an
unaffiliated firm has remained relatively unchanged at year-end 2020, compared to the last
several years; it was about half of all U.S. insurers, dating back to at least 2016.
Consistent with prior years, small insurers, or those with less than $250 million in assets under
management (AUM), accounted for the largest percentage, or 63% of the total number of U.S.
insurers, that outsourced investment management.
Property/casualty (P/C) companies continue to account for almost 60% of the total number of
U.S. insurers that outsource to unaffiliated investment managers.
For U.S. insurers that named the unaffiliated investment management firms that they utilize,
BlackRock, Conning, and New England Asset Management Inc. (NEAM) have been the top three
most-named investment managers over the last few years.

Author(s): Jennifer Johnson and Jean-Baptiste Carelus

Publication Date: 18 Jan 2022

Publication Site: NAIC Capital Markets Special Bureau

Year-End 2021 Capital Markets Wrap-Up

Mary Pat Campbell

Link:https://content.naic.org/sites/default/files/capital-markets-special-report-YE%202021%20wrap%20up.pdf

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The U.S. economy has made a solid recovery as COVID-19 vaccinations were made increasingly
available, social distancing began to ease, and businesses gradually reopened.
The International Monetary Fund (IMF), among other forecasters, expects the U.S. economy to
grow by about 6% in 2021, after contracting about 3.4% in 2020.
• Inflation reached a 39-year high of 6.8% in November following a strong rebound from the COVID19-induced recession.
• The ‘stronger for longer’ inflation rates prompted the Federal Reserve to accelerate the tapering
of its asset purchases and to suggest the likelihood of three rate hikes in 2022.
• The 10-year U.S. government bond yield has generally ranged between 1.3% and 1.7% in 2021,
increasing from less than 1% in 2020, due in part to fiscal stimulus aiding in economic recovery.
• Credit spreads have been muted in 2021 given robust global economic growth, favorable funding
conditions, and overall solid corporate performance despite higher costs and supply disruptions.
• Global stocks have achieved relatively high returns; in the U.S., the Standard & Poor’s (S&P) 500
posted seven record closing highs in November alone.
• The price of oil reached a seven-year high of $85 per barrel in 2021 as demand for oil normalized
while the global supply market tightened.

Author(s): : Jennifer Johnson and Michele Wong

Publication Date: 22 Dec 2021

Publication Site: NAIC Capital Markets Bureau Special Reports