Colin Tipping: My role is Group Chief Investment Officer (CIO) at Compre Group. We are a global specialty reinsurance business. We provide specialist and retrospective reinsurance solutions giving our clients certainty on their portfolios. Our expertise extends beyond claims management. We provide specialised liability transfer solutions by leveraging valuable insights obtained from accurate data.
My role is to formulate and execute the investment strategy. The importance of the asset management side of any insurer has moved more to the forefront – so, ensuring that the asset pool is not just a source of liquidity but a contributor to the P&L is often a strategic priority.
We are clear on our investment thesis. We have a clear risk appetite in terms of what we could – and should – be investing in, and that is informed in the main by the liability cash flow profile.
Colin: If we enter a transaction with a counterparty to take a book of liabilities from them, its makeup and characteristics will inform how we shape the asset strategy specifically to support it.
For example, the difference between a longtail, asbestos-type book versus short-term auto is that the nature of the liability informs the asset strategy, and then we can roll that up into an aggregate view of what the tool balance sheet looks like.
We are often deal-specific in terms of what the asset strategy is from an asset management point of view.
"It is about what you can do with the information you extract from the data –
how do you use it to make better decisions?"
From the financial tasks’ perspective, it is more about our operating platform, how we can report and create the MI, and how we inform our decision-making around that particular sleeve of liabilities and assets.
We work a lot with the asset liability management team, for example, and as you would expect we are always about the data; how does the data drive what we are trying to do? It is not data for the sake of it. I am a big believer that data on its own is not much use. It is about what you can do with the information you extract from the data – how do you use it to make better decisions?
It is also about asking, “What does the liability look like?”, “What's the appropriate strategy to meet your obligations?” and making sure we generate a profit to make it a sensible business model.
Colin: You must be sensitive to the regime you are operating under in terms of how you execute your strategy. Many of us have grown up in the Solvency II world and are familiar with it. It is about having a healthy relationship and an open dialogue with the regulator.
Colin: The markets certainly got ahead of themselves, with many saying “There will be X number of rate cuts over the course of this year.” I have been through too many crises in my four decades in the business, so I am circumspect about what the market wants to happen and what is going to happen.
That is playing out in the way markets are responding. It is all about positioning, depending on your book. We are rate sensitive of course, so we immunise and create a portfolio that matches in terms of duration and positioning depending on the curve.
It is vital to consider the shape of the curve and the extent to which it changes. We are not a trader; we are buy-and-maintain because we are about matching liabilities. But, within that, there are always going to be opportunities you expect your managers to be taking advantage of.
"You need to ensure your operating model is robust across the
front, middle, and back office."
It is about finding that balance between doing the day job and not missing the opportunities as they arise. You must temper that, though, by not trying to be too much of a market-trader.
Position yourself on the curve well whilst taking advantage of tactical opportunities and ensure you have the right oversight of your managers to be able to do that. You need to ensure your operating model is robust across the front, middle, and back office.
Colin: It is not all about the Fed – but it is all about the Fed if you know what I mean. You must consider the Fed, the European Central Bank (ECB), and the Bank of England (BoE) simultaneously as an international player. We have Lloyd's business; we have Solvency II business; and we are in North America, so we are not just thinking about what the BoE is doing.
This gives a clearer picture overall, in the sense that the degree to which the BoE is going to react over time is going to be a bit more than what the ECB is doing because the starting point is different.
The Fed will inform, I would say, what both of those players are going to do. It is becoming clear that it is not ‘if’ but ‘when.’ However, the significant difference, as we touched on earlier, is the scale of those cuts and how that is going to play through to the market.
So, yes, this is a consideration for us – but if you are hedged well enough it helps.
Colin: Bearing in mind that we, like many insurance asset owners, will use managers to implement our decisions, we are probably seeing it more from a second-order point of view.
By this, I mean that asset managers are talking to us about how they're thinking about AI. Not just in terms of how they're investing in it, but how they're engaging with it themselves, and the tasks and functions they are adopting AI to complete.
A lot of people are talking about it. For example, the quant houses and the people who are using it to be better and quicker at carrying out the tasks that would be done by a team of junior analysts these days.
"Whether [AI] is financially useful or a better investment proposition,
it is too early to make that call."
I have not yet seen it translating into this. We are however investing in technology and data management and transforming our data centres to offer scalable solutions in the future, staying ahead of the curve and offering efficient data solutions and insight for advanced decision-making important to our business.
My interest is around the questions: “How are my suppliers using it?" and "How are my managers using it and embracing it?" and reflecting on a better outcome for us.
Whether it is financially useful or a better investment proposition, it is too early to make that call.
Colin: There are a lot of conversations about this with stakeholders and how it affects our thinking in the current business environment. The question is: how does what I and the team are doing contribute to the overall business?
We must be sensitive to where we are in the cycle as insurers and as an industry because we are either at a good point in the cycle – and premiums are great, and you can make a good profit – or the cycle is at a stage where premiums are soft and it’s challenging to make money out of underwriting, so the pressure builds on the asset side.
"We all spend time worrying about the composition of the asset strategies
compared to where we are positioned on the curve."
That historic pendulum – where you make your money from underwriting or other sources – is swinging, and the contribution from the asset management side of the business is much more meaningful I would say (of course).
I talk to a lot of other CIOs about this, and we all spend time worrying about the composition of the asset strategies compared to where we are positioned on the curve, the credit profile of our portfolio, and what our next alternative investment idea is.
