Carter Lawrence: Tennessee is home to many different types and sizes of insurance companies.
Even as the economic environment continues to change, our biggest challenge is to make sure we understand each insurer’s investment strategy, making sure that it is reasonable in light of the duration of the insurance products and company size.
Further, we must verify that insurers adhere to their plan instead of changing their investment philosophies at each economic shift. An insurer with a clear investment strategy and defined investment guidelines poses less risk than an insurer that is reactionary and attempts to game the system or chase yield for short-term gains.
"We want to be a trusted resource to our industry, so we share opinions and ideas, and ask questions to make sure we understand our insurers."
Finally, making sure the insurer has the proper controls and corporate governance in place to monitor its investment portfolio is extremely important, especially as many insurers have turned to third parties and outsourced this function.
Transparent communication is key to maintaining positive relationships with our regulated insurers. We want to be a trusted resource to our industry, so we share opinions and ideas, and ask questions to make sure we fully understand our insurers and the risks that apply to each one.
Carter: We take a proactive approach, and we have honest conversations with our insurers regarding solvency, investment risk, and being over-leveraged.
In some cases, we require capital maintenance agreements with the insurer’s parent company that automatically require a capital infusion if certain ratios or thresholds are triggered.
Requiring regularly updated pro-forma financial statements for rapidly growing or evolving companies is also a tool that we use to make sure a company is adequately planning for and mitigating future risks and challenges.
Carter: Fortunately, we have not seen a huge shift in allocation despite the economic changes of the last few years.
"Affiliated investments would be an area of concern as we look ahead."
Recent bank failures were certainly a wake-up call, not just for deposits held in the banks, but also for insurers’ holdings of those banks’ common stocks. Rate hikes have provided some relief for investments in Treasuries.
Affiliated investments would be an area of concern as we look ahead.
Carter: There are no anticipated legislative changes on the state level that will impact our regulation of investment portfolios. On a broader scale, we are paying closer attention to private placements and the valuation of affiliated investments.
Carter: The biggest misconception is that an insurer files its investment guidelines with a regulator and the regulator either “rubber stamps” it or never looks at it again.
"Our questions are usually designed to enhance our understanding or to make sure the insurer has considered things from another perspective."
With slimmer operating margins, the investment function carries a more important role in insurer profitability. We carefully review every investment schedule and make sure a company’s portfolio matches its guidelines and is appropriate for the insurer’s size and lines of business.
Another misconception is that any questions from the regulator regarding investment allocation or guidelines automatically signal that the regulator is opposed to or against an insurer’s plan; in reality, our questions are usually designed to enhance our understanding or to make sure the insurer has considered things from another perspective.