Case study - managing regulation in a multinational portfolio
Raman Srivastava, Chief Investment Officer at Great-West Life explains how the insurer is dealing with Brexit and other regulatory pressures
Insurance Investor editorposted on Thursday, October 24, 2019
Insurance Investor: What is the size of your portfolio and in which regions do you operate?
Raman Srivastava: The general account assets total approximately $175 billion Canadian dollars ($132 billion USD) which are split between Canada, the U.S. and UK/Europe.
II: What impact does Brexit have on the company and the portfolio?
Raman: From an investment perspective, we have been largely insulated from the volatility associated with the uncertainty around Brexit. However, Brexit has led to an erosion in business confidence, which impedes foreign investments in the area.
There are both positives and negatives associated with this uncertainty. On the positive side, you have higher risk premiums built into certain asset classes and we can enjoy wider spreads or better return prospects.
On the flip side, it introduces downside risk to portions of our investments. This includes property and corporate bonds.
"Brexit has led to an erosion in business confidence, which impedes foreign investments in the area."
As with any investment, we want to consider the tail outcomes and be sure that our portfolio of investments can withstand a hard Brexit or a disruptive Brexit outcome. We are confident that we are invested in such a way that we will come through any scenario relatively well.
From a company perspective, since a portion of our earnings are generated from the UK, Brexit uncertainty, which in turn pressures the pound can have an impact on earnings when translated back to Canadian dollars; although I would say that it is more second order effect.
We continue to expect strong earnings from the UK regardless of the Brexit outcome.
II: How do you manage the various global regulations in order to stay compliant?
Raman: We have many resources dedicated across each of the regions to ensure that we are compliant with local regulations.
In addition, we manage risk, including regulatory risk, through our enterprise risk management framework which includes a global compliance function.
Through that framework we identify emerging regulations and map our regulatory requirements to business units.
"For us, investing becomes multi-dimensional – return, risk, liquidity and capital, all multiplied by three regions."
We have controls to ensure that we meet our regulatory requirements and we test the strength of those controls on a regular basis, as does our audit function.
On the investment side we always keep regulatory and capital requirements in mind when investing, so it isn’t necessarily only about risk and return.
For us, investing becomes multi-dimensional – return, risk, liquidity and capital, all multiplied by three regions.
The various capital regimes are not completely consistent across regions and asset classes, so we need to incorporate this into our investment decisions as well.
This excerpt was taken from the research report Insurance Asset Management, North America 2019. You can download the full report https://www.clearpathanalysis.com/reports/insurance-asset-management-north-america-2019.