peer analysis perspectives as of 12/31/2011 march 29 th, 2012
TRANSCRIPT
Peer Analysis PerspectivesAs of 12/31/2011
March 29th, 2012
Peer Analysis Overview
SAA P&C Client Portfolios21 Clients (18 Primary / 3 Reinsurers)
26 Portfolios
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RISK ASSET ALLOCATION
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Risk Asset Allocation Review
Typical Risk Assets1. U.S. Equities2. International Equities3. High Yield Fixed Income4. Convertible Bonds5. Emerging Market Debt6. REITs
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Risk Asset Allocation - % of Portfolio
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Max 36.91%Median 10.17%Average 11.82%
Risk Asset Allocation - % of Surplus
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Max 69.55%Median 20.94%Average 23.94%
Risk Asset Allocation By Portfolio Size
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Max 36.91%Median 10.17%Average 11.82%
Risk Asset Allocation By Portfolio Size
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Max 69.55%Median 20.94%Average 23.94%
Risk Asset Allocation
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U.S. Equity %Intl. Equity % HY % Other %Max 100.00% 33.50% 47.60% 67.80%Median 65.14% 15.49% 0.00% 0.00%Average 58.57% 13.11% 9.25% 3.70%
Risk Asset Allocation
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U.S. Equity %Intl. Equity % HY % Other %Max 100.00% 33.50% 47.60% 67.80%Median 65.14% 15.49% 0.00% 0.00%Average 58.57% 13.11% 9.25% 3.70%
CORE FIXED INCOME ALLOCATION REVIEW
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Fixed Income Portfolio Duration & Portfolio Size
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Max 6.30Median 3.77Average 3.98
Fixed Income Portfolio Book Yield & Portfolio Size
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Max 4.60Median 3.51Average 3.41
Fixed Income Portfolio Book Yield & Duration
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Duration (Yrs) Book Yield (%)Max 6.30 4.60Median 3.77 3.51Average 3.98 3.41
Risk Asset Allocation By Fixed Income Portfolio Duration
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Risk Asset Allocation By Fixed Income Portfolio Duration
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PERFORMANCE REVIEW
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Fixed Income Performance
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Total Portfolio Performance - Risk Asset Allocation Impact
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Total Portfolio Performance - Duration Impact
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Fixed Income Investment Management Fees
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LOOKING AHEAD
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Latest Headlines
Economic Headlines Theme - Improving GDP revised upward for Q4-2012 to 3%
from 2.8%; Personal income and spending up but soft
in January; Motor vehicle sales roar in February; Consumer confidence gains in February; ISM manufacturing disappoints but still
growing; Pending home sales post another gain; Federal Reserve beige book shows
recovery gaining traction. 23
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Yield Enhancement Mechanisms
Increase Non-Treasury AllocationDuration ExtensionEmerging Market Debt/EquityHigh Yield Fixed IncomeREITsHigh Dividend EquitySector Specialty Mandate (in lieu of
core bond)
Risk Asset Allocation to Surplus Ratio
Global Portfolio Positioning
17.5% 54.1% 28.4%1.0% 98.0% 1.0%
-5.4% 14.4%
-60
%-4
0%
-20
%0
%2
0%
40
%6
0%
80
%0
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Net Asset Volatility
Net Asset Volatility
Minimum -52.2%Maximum 71.8%Mean 6.95%Std Dev 13.2%Values 50000
Total Portfolio Volatility
Minimum -13.2%Maximum 23.1%Mean 4.55%Std Dev 4.26%Values 50000
Total Portfolio Volatility vs. Surplus Volatility
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• Total portfolio and surplus portfolio materially diverge.
• Negative Tail Risk
Asset Class% of
PortfolioExpected
ReturnExpected Volatility
Investment Grade Core Fixed Income 80% 3.75% 3.75% 1.00Risk Assets 20% 7.75% 16.50% -0.09 1.00
Ratio of Risk Asset Metric to Core FI 206.7% 440.0%
Net Assets as % of Total Portfolio 25%Risk Assets as % of Net Assets 80% 7.75% 16.50%Core Fixed Income as % of Net Assets 20% 3.75% 3.75%
Correlation
• This is how a typical bond/equity allocation gets insurers into trouble...reserve leverage.
Prospective Asset Class Returns
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Prospectively, low yield environment significantly hinders core fixed income total return expectations;
Rising rates will affect financial statement presentation and, at worst, misinterpretation.
As usual, the questions is how much risk are you willing to take for additional returns.
Return Risk Risk/Reward RatioCore Fixed IncomeU.S. Aggregate Bond 3.00% 3.75% 125.00%U.S. Municipal Bond (Pre-Tax) 2.50% 3.75% 150.00%U.S. Investment Grade Corporate 4.00% 7.75% 193.75%U.S. Tips 3.50% 7.00% 200.00%Core Risk AssetsU.S. High Yield 7.00% 17.00% 242.86%U.S. Large Cap 8.00% 19.50% 243.75%Global Equity 8.25% 22.50% 272.73%U.S. Mid Cap 8.75% 24.50% 280.00%U.S. Small Cap 8.50% 25.00% 294.12%Emerging Mkt Equity 10.00% 30.50% 305.00%EAFE 7.75% 24.75% 319.35%Alternative Risk AssetsHedge Fund (Diversified) 6.25% 7.25% 116.00%World Governement Bond (Hedged) 2.50% 3.00% 120.00%Global Infrastructure 7.75% 12.50% 161.29%EM Corporate Debt 6.50% 10.75% 165.38%EM Sovereign Debt 6.00% 11.50% 191.67%U.S. Leverage Loan 6.00% 15.25% 254.17%Gold (spot) 6.75% 17.75% 262.96%Commodities (Basket) 6.50% 18.25% 280.77%U.S. REITs 7.00% 25.75% 367.86%U.S. Private Equity 8.75% 34.25% 391.43%Using JP Morgan Capital Market Assumption
Asset Class Forecast
DISCUSSION & QUESTIONS
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