CIO view: Challenges and opportunities on 2023 for insurers

André Keller, Chief Investment Officer, Helvetia Insurance, discusses European insurance investment team trends for 2023 including private markets, and changes to Solvency II.

Andrew Putwainposted on Monday, January 09, 2023

André Keller, Chief Investment Officer, Helvetia Insurance, discusses the latest trends.

Andrew Putwain: What is your role, your background and which organisation do you work for?

André Keller: I'm the Group Chief Investment Officer (CIO) of Helvetia Insurance Group, a Swiss insurance company. Helvetia has a long-standing history of over 160 years and our main business is located in Switzerland as well as other countries in Europe, but we have an increasingly global footprint through specialty lines business and active reinsurance, which is a growing part of our business.

Our traditional businesses – such as retail, life, and non-life insurance – are mainly housed in Switzerland but are prominent in Europe as well, because we form an integrated European financial service provider.

"We offer a range of multi-asset traditional and real asset classes, which we manage ourselves, though are increasingly partnering with external managers."

As a Group CIO, I am responsible for running Helvetia Asset Management – our asset management arm.

Alongside our internal  Group clients, we serve mainly institutional pension and savings clients in Switzerland. We offer a range of multi-asset traditional and real asset classes, which we manage ourselves, though are increasingly partnering with external managers.

In Switzerland, we manage direct real estate portfolios and a mortgage business together with other subsidiaries. Overall, it's around 60 billion Swiss francs of in-house money and third party.

Andrew: What is Helvetia’s outsourcing strategy and ethos around it?

André: We outsource in two respects: one is investment management and in business areas along the value chain of the investment process.

"On business areas, we work together with external asset managers and other service providers in terms of specific segments of the investment value chain and technology."

On investment management, it's especially in asset classes that we believe other asset managers have better access to the market such as private debt or infrastructure, or better economies of scale.

On business areas, we work together with external asset managers and other service providers in terms of specific segments of the investment value chain and technology. For example, in mortgages, we outsource components of the value chain either as an extended workbench or as an outsourcing partner.

Andrew: In the first half of 2022, there was a lot of change in investment strategies for many insurance companies, including your own. What do you think the industry can learn from and improve in its business strategies when faced with similar economic conditions?

André: Yes, over the last ten-plus years in the insurance industry you’ve seen a broader application of the same regulatory insurance frameworks and capital frameworks, such as Solvency II or Swiss solvency in Switzerland. These models lead to similar investment strategies being applied because of pursuing similar goals for optimal capital efficiency.

What the industry can and must do going forward is to think more in scenarios and test the robustness of their investment strategies. Not only with historical data or some expected capital market expectations, but thinking through scenario testing, whether it's inflation, or increasingly political reasons or sanctions that may change the price behaviour of financial markets.

Testing the portfolio in these scenarios to achieve more robustness is key.

Andrew: What investment market conditions are you currently seeing, and what changes are you making to strategies for 2023?

André: To understand where we are and where we're going, it's important to understand from where we came. This is especially necessary over the last few years.

If you think about the longer term, we have had 30-plus years of an economic and political system that leads to maximum efficiency. The whole economy was using globalisation, outsourcing to the cheapest labour markets, as a way to maximise profitability and that came to a halt in 2020 when the global system went to a standstill.

"We believe this is an environment that doesn't give you enough indicators to put a strong position on whether a complete derisking scheme or a risk-on zone."

In 2021-22, we had a restart of the economy and that led first to a shortage in goods. Then it led to a shortage in services and labour. Now in 2022, we have a war in Ukraine with an energy crisis leading to a shortage of energy. These three things together led to massive inflation and other geopolitical shifts will lead to more persistent inflation.

The inflation rates will come down during the next year, but they will still – in our view – remain at a higher level than expected. It’s important to understand that given these massive changes over the last few years we still consider general visibility, and predictability as low.

We believe this is an environment that doesn't give you enough indicators to put a strong position on whether a complete derisking scheme or a risk-on zone, so we have adopted a moderate risk profile due to this versus the strategic asset allocation. We believe that we have some preferences in terms of credit over equity. There are some tilts in the portfolio, which we have, but no massive shift away from our strategic positioning. We have repositioned the portfolio and have put on hedges - and constructed it in a manner so that it should be robust throughout the next economic cycle.

Andrew: What data and technology strategies are you looking at?

André: Over the last two years we have rethought our investment technology platform and in 2023 we’ll implement an integrated investment management platform, especially thinking from the data management side and into investment management.

As we are a multi-asset, multi-currency, multi-liquidity – in terms of traditional to illiquid investments – investor, we have landed on implementing Blackrock Aladdin in combination with eFront as our main investment management platform.

We have specific IT technology solutions for real estate management and other asset classes and we’re also increasingly using Python and other programming languages to construct portfolios and scenarios in our investment management.

Andrew: Is the Swiss solvency regime under any sort of change, and is the industry in Switzerland happy with the current solvency regime?

André: The Swiss industry, as with Solvency II in European Union, which are similar frameworks, has adapted to these frameworks well.

What is changing towards 2023 is the accounting regime, IFRS, that reports on IFRS 17 and IFRS 9 standards. This change will influence the whole industry.

Andrew: Which regulations are you keeping an eye on, and what areas within legislation are particularly interesting to you - given your market share in EU countries - be that in Switzerland or elsewhere?

André: The largest change for the insurance industry will be the introduction of IFRS 17 and IFRS 9, a completely new accounting standard.

"When it comes to constructing portfolios, it’s more about resilience and robustness than about maximum profitability and efficiency."

ESG will also be a constant change, along with sustainability and climate-related guidance and regulation policies.

We also need to keep an eye on changing fiscal and political steering mechanisms and actions.

Finally, you have rating agency capital models, which change as well. Insurance investing is a complex craft – which means that incorporating all these considerations into portfolio construction is key. We need to be mindful of these factors and construct portfolios that most efficiently incorporate these aspects.

In general, I expect there will be a move from "maximum efficiency" to "maximum resiliency". We come from a world that used to look for maximum efficiency everywhere. I believe with the incoming economic and geopolitical regime when it comes to constructing portfolios, it’s more about resilience and robustness than about maximum profitability and efficiency.

 

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