A positive outlook

Managing insurance portfolios has been challenging in 2013. Yields are low but the macroeconomic cycle has started to turn, and volatility has picked up. Core bonds that had appeared to offer ‘safe haven’ status have been shown to be very risky, and still offer a very asymmetric risk-return profile. For the balance of this year, the main emphasis will be on avoiding mishaps. Insurers have enough to worry about on the liabilities side of the balance sheets: they do not need nasty surprises from the assets side. Event risk is high—Syria; German Constitutional Court; US debt ceiling; emerging markets unrest—and hard-won performance can easily be lost, especially if the manager has been tempted to extend duration on the optically higher yields on offer.