Issue #46 September 19, 2013

Please Welcome a New Sponsor

We are excited to announce a new sponsor:
AAM | Insurance Investment Management!

As InsurerCIO's mission is to help insurers with their investment process, it is important that we provide our audience with the necessary resources to find the investment managers that will be most helpful for their insurer's bottom line.

AAM has built an organization dedicated to meeting insurance company needs, with expertise not just in fixed income investing, but in accounting, tax modeling, asset/liability matching and the management of convertible bond, high yield and bank loan strategies. (Some of these are discussed in our Education Section)

As a sponsor, AAM and other firms will be able to provide you with even more expert insight and greater opportunities to improve your firm's investment process.

Learn More About AAM

In This Issue

Recommended Readings
Latest Resources

Recommended Readings

Beating the Market has Become Nearly Impossible
Original Article by Julie Segal of the Institutional Investor

In this extensive piece, Segal dives deep into how alpha has gotten much hard to find and if ultimately, getting returns above an index fund is impossible at this point. One of the reasons Segal finds is that everyone is at fault. According to author Charles Ellis, money managers over-promise, investment committees operate under bad structures, consultants want to protect their franchises, along with underpaid, understaffed institutional investors. In regards to why the aggregate amount of alpha, or risk-adjusted excess return, seems to be diminishing, investors keep dumping funds at the worst possible moment.

For Full Report

S&P Lowers RMBS Standards
Original Article by Nathaniel Popper of the New York Times: Dealbook

After the financial crisis, S.& P. was hesitant to rate most of the new bonds tied to residential mortgages. The agency and its rivals had been accused of helping to set off the crisis by giving their highest ratings to bonds backed by subprime mortgages that ended up suffering huge losses, Popper explains.

S.& P.’s tough stance was hurting the bottom line as the numbers made it clear that if the division wanted to stay afloat, the analysts would have to make changes.

For Full Article

Transparency Good and Bad for Corporate Bonds

"Many financial markets have recently become subject to new regulations requiring transparency. This paper studies how mandatory transparency affects trading in the corporate bond market. In July 2002, TRACE began requiring the public dissemination of post-trade price and volume information for corporate bonds. Dissemination took place in Phases, with actively traded, investment grade bonds becoming transparent before thinly traded, high-yield bonds. Using new data and a differences-in-differences research design, we find that transparency causes a significant decrease in price dispersion for all bonds and a significant decrease in trading activity for some categories of bonds. "

For Full Article
Repo Market Still Broken
Original Article by Gretchen Morgenson of the New York Times: Business Day

This article covers how even with so many regulations and conversations put in place to save markets from another potential collapse, one vulnerability remains with the repo market. Now $4.6 trillion in size, it is where almost every financial crisis since the 1980s has begun, but little has been done to reduce its risks.

For Full Article

NY: NAIC Reserving Law A Surplus Giveaway
Original Article by Mary Williams Walsh of the New York Times:Deal Book

Several large life insurers are going to have to set aside a total of at least $4 billion as New York regulators believe they have been manipulating new rules meant to make sure they have reserves to pay out claims.

For Full Article

Latest Resources

"Is Fiscal Austerity Good for the Economy?"
Federal Reserve Bank of Richmond

"Concerns about fiscal imbalances in Europe and the United States have led to intense debates about whether governments should dramatically cut spending or increase taxes to reduce government debt—a course of action often called fiscal “austerity.” But is austerity likely to hurt economic growth? That question has not been definitively answered—but even if austerity is costly in the short run, it can provide long-run benefits."

For Full Report
"Reassessing the Role and Modalities of Fiscal Policy in Advanced Economies"
International Monetary Fund

"This paper investigates how developments during and after the 2008–09 crisis have changed economists’ and policymakers’ views on: (i) fiscal risks and fiscal sustainability; (ii) the effectiveness of fiscal policy as a countercyclical tool; (iii) the appropriate design of fiscal adjustment programs; and (iv) the role of fiscal institutions. "

For Full Report
"Assessing the Costs and Consequences of the 2007–09 Financial Crisis and Its Aftermath"
Federal Reserve Bank of Dallas

"There are few estimates of what society gave up due to the crisis: Our conservative estimate is $50,000 to $120,000 for every U.S. household."

For Full Report
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