Property & casualty (P&C) insurers say that principal preservation and total return are the most important objectives of their companies’ portfolio management, yet when asked about their satisfaction level with these two investment goals, their responses diverged. Three-quarters of the participants in a new Property & Casualty Insurance CFO Survey said principal preservation is the most important objective for their companies, and equal percentages are very satisfied with the outcome. Total return is ranked most important by 69% of the CFOs; however, only 23% are very satisfied with it.
The survey, which examines CFO perspectives on investment strategies, was conducted by global professional services company Towers Watson (NYSE, NASDAQ: TW). Liquidity and the ability to pay claims registered third among CFOs’ overall objectives, with a 63% response rate — and scored high in satisfaction, as 85% are very satisfied with how their companies met this objective.
“CFOs with P&C insurers are facing current investment challenges, which are inherent to their dual requirements of ensuring that their companies withstand today’s adverse market conditions while still meeting the expectations of rating agencies and regulators. The responses from our survey illustrate that capital appreciation and investment income aren’t sufficiently contributing to P&C insurance company returns levels needed to adequately please their investors,” said Stuart Hayes, senior consultant, Towers Watson.
According to the survey, almost one-third of respondents (31%) expect their companies’ investment strategies to become slightly more aggressive in the coming year, yet none say they anticipate taking on a significantly more aggressive investment posture. Hayes added, “The more assertive investment posture reflects a low interest rate environment that necessitates slightly more risk taking to improve portfolio returns.”CFOs expressed satisfaction with their companies’ approach to investment policies. Over three-quarters (78%) said they are very satisfied with their companies’ investment management governance. Similarly, CFOs conveyed that adequate risk controls such as asset/liability management and liquidity are in place, with 75% revealing they are very satisfied. “With the confluence of the financial crisis and the resulting investment environment combined with the push on ERM – risk controls and policies will continue to be important as companies effectively manage risk in the future.,” said Hayes.