gettingtherestartshereTM

Insurance companies have unique investment needs driven by regulatory requirements, risk limits, accounting guidelines, and tax and asset-liability management considerations. Specialized asset management solutions help insurers optimize their portfolios for capital efficiency and liquidity needs while ensuring compliance with evolving regulatory frameworks, such as the Australian Prudential Regulatory Authority (APRA)’s Life and General Insurance Capital (LAGIC) framework, the Financial Services Agency of Japan (JFSA)’s Economic Value-Based Solvency Ratio (ESR), the Monetary Authority of Singapore (MAS)’s Risk-Based Capital (RBC) framework, the Hong King Insurance Authority (HKIA)’s Risk-Based Capital regime (HK RBC), and accounting developments in areas such as U.S. GAAP, Japanese GAAP (J-GAAP), Japan’s Modified International Standards (JMIS), SFRS(I) 17 Insurance Contracts (Singapore Financial Reporting Standards (International) 17), HKFRS 17 (Insurance Contracts) and HKFRS 9 (Financial Instruments), IFRS 9, or IFRS 17.

Asset managers like State Street Investment Management provide insurers access to a broad range of investments and strategies. Access to additional investments with a refined portfolio construction approach can be helpful to many insurers who don’t have these capabilities built internally. More specifically, asset managers help insurers:

• Align assets with liabilities to meet policyholder obligations
• Improve risk-adjusted returns through diversification
• Enhance capital efficiency under various regulatory frameworks
• Manage liquidity needs for claims payouts and operations
• Execute within timing, tax, and budgetary constraints

Insurance companies must adhere to regulations such as the Australian Prudential Regulatory Authority (APRA)’s Life and General Insurance Capital (LAGIC) framework, the Financial Services Agency of Japan (JFSA)’s Economic Value-Based Solvency Ratio (ESR), the Monetary Authority of Singapore (MAS)’s Risk-Based Capital (RBC) framework, the Hong King Insurance Authority (HKIA)’s Risk-Based Capital regime (HK RBC), as well as accounting guidelines for U.S. GAAP, Japanese GAAP (J-GAAP), Japan’s Modified International Standards (JMIS), SFRS(I) 17 Insurance Contracts (Singapore Financial Reporting Standards (International) 17), HKFRS 17 (Insurance Contracts) and HKFRS 9 (Financial Instruments), IFRS 9, or IFRS 17. When selecting an asset manager, insurers should evaluate the firm’s expertise in navigating these frameworks, mitigating PnL concerns, and their ability to ensure compliance with their internal risk management controls.

Asset managers use risk aware investing strategies, asset-liability management (ALM), and capital-efficient solutions to help insurers optimize their portfolios. At State Street Investment Management, we focus on achieving:

• Capital efficiency: Minimizing risk weighted assets and/or risk based capital (RBC) while maximizing returns
• Diversification: Reducing risk exposure through multi-asset-class portfolios
• Liquidity management: Helping insurers meet claims and other cash obligations without sacrificing investment growth

Insurance companies can benefit from investments in a mix of:

• Core fixed income (investment-grade bonds, municipals, and government debt)
• Alternatives (private credit, infrastructure, and real estate)
• Core+ fixed income (leveraged loans, high yield bonds, and emerging markets bonds)
• Equities (dividend-paying stocks, small-, mid- and large-cap stocks, and domestic and international exposures)
• Structured securities (MBS, ABS, CMBS, and CLOs)

ETFs provide insurers with low-cost, transparent, tax efficient, and liquid access to diversified investment strategies. They offer advantages such as:

• Active or passive management at a reasonable cost
• Intraday liquidity with holdings transparency
• Diversification with instant exposure to various asset classes
• Execution efficiency from using a single wrapper traded on equity exchanges globally
• Embedded tax efficiency of the ETF wrapper

Many fixed income and preferred stock ETFs have preliminary designations from the National Association of Insurance Commissioners (NAIC) and reside on the NAIC Securities Valuation Office’s ‘SVO-Identified Preferred Stock ETF List’ or ‘SVO-Identified Bond ETF List’. The NAIC preliminary designation allows an insurer to file for a final designation and in so receiving has ‘look through’ to its fixed income ETF and/or preferred stock ETF’s underlying holdings, resulting in lower capital charges than if the preferred stock ETF or fixed income ETF was classified as an equity. At State Street Investment Management, we have 29 NAIC preliminarily designated fixed income and preferred stock ETFs—plus, 20 are also S&P® rated, fulfilling the New York Department of Financial Services’ (NY DFS) requirements for insurers in that state.

Under insurance regulatory frameworks such as Solvency II and Solvency UK, fixed income ETFs benefit from an automatic ‘look through’ treatment. This approach does not require a preliminary designation from the local authority and enables insurers to apply capital treatment aligned with the underlying fixed income instruments held by the ETF—resulting in more favourable capital charges than if the ETF were classified as equity.

ETFs provide intraday trading capability, allowing insurers to quickly rebalance portfolios and meet liquidity needs without sacrificing their core investment positioning.