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The More Things Change, the More They Stay the Same

August 2021 - 9 min read

Core CMLs can offer a number of benefits to insurance investors—from a material spread premium over similarly rated corporates, to low historical defaults and delinquency rates, to diversification.

The Fibonacci sequence illustrates the truth and beauty of mathematics all around us—in sea shells, sunflowers, pineapples and more. It is intimately connected to the Golden Ratio, and thereby to the Vitruvian man and all that is aesthetically pleasing to us as humans. 

While it is comforting that the beautiful fundamentals of mathematics do not change, many aspects of the world around us are changing constantly. The Global Financial Crisis (GFC) rocked our world so completely that terms like “the new normal”, “models behaving badly”, and “black swan events” came into vogue. Recently, the global pandemic revived the use of such terms, and—in an even more startling turn—disrupted the basic assumptions and dynamics underlying our society.

Insurance companies have long been conscious of tail-risk events and the related consequences, in many cases weathering unexpected storms through careful risk management, planning, and by staying true to mathematical and investment fundamentals. 

However, stability alone is not always enough, as insurers must be competitive for both policyholders and shareholders. And indeed, amid the prolonged low-rate environment of recent years, many insurers have looked for ways to enhance yield without taking on more risk. While there are no magic assets, and “high” yield might not be realistic for “low” risk, there are ways insurers can enhance yield without diminishing quality—namely through allocations to certain types of investment grade private assets.


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