Sponsored Content

Building Customized Investment Strategies for Insurance Companies

An Institutional Investor Sponsored Statement<br>John D. Simone, senior vice president, head of insurance solutions, Voya Investment Management, shares his insights and suggestions for addressing the challenges of today’s low-rate environment.

Sponsored by 

To view a PDF of the full report, click here.

2016-07-insurance-john-simone.jpg

John D. Simone, senior vice president, head of insurance solutions, Voya Investment Management, has extensive experience developing customized asset management strategies for leading insurance companies. Here he shares his insights and suggestions for addressing the challenges of today’s low-rate environment.

What is the number one investment issue facing insurers?
Insurers are seeking higher returns while minimizing risk within a capital-efficient framework that provides transparency and accountability. As a result, they are broadening their asset allocation strategies and increasing portfolio diversification by considering private placements, structured credit, bank loans, high yield debt, private and public equity and other asset classes.

What about allocating to hedge funds?
Insurers with hedge fund allocations have typically been disappointed with the returns over the past few years. Now they are looking at ways to deploy those dollars in a less expensive structure that could provide more consistent potential returns.

Are you seeing more interest in equity strategies?
Yes. Historically, equities have delivered higher returns than a fixed-income portfolio and performed well compared with hedge funds. This year, many insurers are looking at increasing their allocation to equities using a customized combination that blends quantitative and fundamental approaches to achieve a desired outcome. Back testing and other tools can be used to build an engineered equity portfolio designed for a particular client insurer.

Are there opportunities in emerging market debt and equities?
Insurers are still interested in investment-grade emerging market debt, but the credit quality is trending downward. Most emerging market equities are considered too volatile for most insurers’ portfolios. However, high-quality equities that deliver income in U.S. dollars are still in demand.

What are your thoughts on private credit strategies?
Because of the restrictive regulatory environment for U.S. and global banks, insurance companies are becoming the preferred lenders in the investment-grade private credit marketplace. Now, many companies are allocating to the below-investment grade sector, which offers an opportunity to achieve higher returns with somewhat greater risks. However, we feel the current environment is becoming less attractive for making loans to smaller and mid-market companies. On the other hand, if the U.S. goes into a credit recession, investors may have an opportunity to pick up higher-quality loans at a more favorable price.

Are there other potential return opportunities insurers should be considering?
Collateralized loan obligation (CLO) technology can improve the return profile for bank loan investors through leverage. That’s an idea that interests some insurance companies because it lets them improve potential income without taking on too much risk.

Are securitized credits becoming more attractive?
Yes. Insurers recognize the diversification benefits of allocating to non-agency or commercial mortgage-backed securities (CMBS), and have learned from the 2008 financial crisis. In recent years, this sector has performed very well even through the credit bumps. Another benefit is that commercial and residential mortgages are not highly correlated to the overall market

What about public-private asset strategies?
Combining private and public credit in one mandate allows insurers to put their funds to work immediately in a liquid portfolio, then transition those assets into the private credit market over time. This approach lets investors make their moves gradually as opportunities present themselves. The same holds true on the private equity side.

Any advice on choosing an asset manager?
A good asset manager will take the time to understand an investor’s objectives, designs a plan based on those goals and is able to deliver the desired performance.

This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) changes in laws and regulations and (4) changes in the policies of governments and/or regulatory authorities. The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions and other factors.

“Combining private and public credit on one mandate allows insurers to put their funds to work immediately in a liquid portfolio, then transition those assets into the private credit market over time.”
John D. Simone, CFA, senior vice president, head of insurance solutions, Voya Investment Management

2016-05-fixed-income-voya-logo.gif

Contact Information:
John D. Simone, CFA
230 Park Avenue, 14th Floor
New York, NY 10169
Direct: 212-309-8413
john.simone@voya.com