The wider ramifications of the volatile market, which includes everything from the US Federal Reserve’s reticence around dropping rates back, to the rise of Artificial Intelligence in the industry, has made 2024 feel as uncertain even as inflation rates stabilised.
To cope with this continued period of uncertainty requires looking at the full picture of your organisation’s investments and monitoring where it’s headed in a more detailed way than maybe was done so during the low-interest rate periods.
With this in mind, Todd Campbell, Chief Executive Officer, Builders Insurance Group, and Chairman, Sagicor Life Insurance Company, spoke at the Insurance Investor Live | Spring event earlier this year, which is now featured in the Insurance Asset Management Mid-Year Insights report.
In the report, Campbell discusses where he’s changing his allocation - and what his views are on the wider macroeconomic environment – does it mean that more will need to be done to combat any downsides?
Read more below for an excerpt of the conversation with Maya Sibul, Content Manager at Clear Path Analysis.
Todd Campbell: There is a lot around the edges but in 2023 we did make a strategic move. We didn’t have a heavy focus per se, but we did focus on tech. We felt it was time to come out [from this area] and we worked with our Investment Chairman and our external folks to make a fundamental change and shift. The thinking around this was that it was time to move out and we went into an entirely new asset class, and we like where we are now, and it has been a very good place for us.
With Builders, we wanted to capture more by selling down what we had at low yield and buying longer duration at a higher rate and then adding a whole new asset class and coming out of one almost entirely.
Todd: We are growing rapidly but this is growth with discipline, 38.5% since the year end of 2021. I joined in April of 2021, and we wanted work quickly with changing the business, as we had become one that was ticking along but not doing much with our history and brand so there was so much more we could do. In terms of what we could do in the future, we have significant plans to grow the operation, and we are on that path and are aiming to double the company within six years of [my] arrival. We are now well down this path and have launched a speciality division.
"The duration that we are looking for here is quite a bit lower than, say, long term comp, we are not in very long tail businesses on the speciality side."
We are after non-correlated returns on the core insurance products but that necessarily means what are we doing with those premiums coming through. We do reinsure a bit of this around the world at Lloyd’s groups and Germany and Bermuda but there is also a meaningful piece of retention for us, so we have to assess those dollars that are completely different to anything, which this company has ever done.
The duration that we are looking for here is quite a bit lower than, say, long term comp, we are not in very long tail businesses on the speciality side, but we expect that book to grow to about $300 million in the next few years from a standing start of zero and we are well on this path.
Todd: We are navigating it the best we can as it is a really strange world. We do look at the macro environment all the time and despite our size we do have $1 billion AUM and that is not an insignificant sum. It is awfully difficult to navigate these larger issues to keep up with all of the relevant topics as a buyer. That is why we rely on our external advisors.
"You can only trade dollars in reinsurance for so long before you aren’t making any progress in your business to buy and just end up keeping flat."
There is a roll up going on in the mutual space for those undercapitalised. So many have been hit so hard resulting in meaningful capital erosion. When I got the chance to run highly capitalised A-rated carrier that doesn’t write some of the more difficult weather-exposed lines - for example, Midwest hail convective cover, where an increase in one level for a tornado is logarithmic, it isn’t just a little bit [of an increase], it’s massive and now the storms are longer, stronger, and stay on the ground longer.
I do feel there will be some real challenges to the stability of the market and what we or they do as an industry to stabilise and be ready for the next steps will be difficult. You can only trade dollars in reinsurance for so long before you aren’t making any progress in your business to buy and just end up keeping flat.
It is a fascinating topic.
