The AAIS Pulse newsmagazine recently featured an in-depth discussion with Woody Bradford, CEO and Chair of Conning, one of the leading global investment management firms serving the insurance industry. He chatted with AAIS CEO Ed Kelly on the investment environment for insurance companies, inflation, cryptocurrency, investment strategies, Environmental, Social, and Governance (ESG), and much more.

Mr. Bradford spoke about the economy, saying that Conning has a positive outlook on 2022 with expected growth of around 4%, slightly less than what we saw in 2021. “We think demand and the economy remains strong. We think corporate balance sheets are healthy and fundamentals of earnings look pretty good.”

 Inflation has been getting extra attention lately and Mr. Bradford pointed out two keys factors to watch:

1. The federal government will take steps to address inflation.
2. It’s an election year, which tends to lead to less legislation, a net positive for inflation.
3. As for inflation’s impact on P&C insurers, while there is risk with liabilities and pricing – a long-term impact is unlikely.

“For inflation to be a meaningful capital destruction event for the industry, we would need to see a multi-year period of sustained inflation…” Mr. Bradford explained. “It's certainly a risk, and it's one worth thinking about, but … we wouldn't ascribe a high probability to it today.”

Mr. Kelly and Mr. Bradford shifted the conversation to managing insurer portfolios, alternative capital, and cryptocurrency. Mr. Bradford said Conning is urging diversification, telling clients to “make sure the entire investment portfolio will support the liabilities in a rising rate environment, in a flat rate environment, and a falling rate environment.”

As for investing in cryptocurrency, Mr. Bradford said he’s not bullish on it quite yet. He sees insurers starting to dip their toe in the crypto waters to understand its long-term potential, but until there is more structure and regulatory rigor around it, Conning isn’t advising heavy investments. Mr. Bradford compared it to the telecom boom of the late 90s, and said its still in its infancy, but has potential. On alternative capital, says the key is considering the different sources of risk and return.

Mr. Bradford also discussed the portfolio impact of Environmental, Social, Governance (ESG) and climate change. Conning just released results from a survey of U.S. insurance companies and incorporation of ESG within their portfolios. “Of those surveyed, 79% said that they began incorporating ESG factors into their investing practices in the last two years, and 41% in the last 12 months -- these are huge numbers and a big change,” Mr. Bradford detailed. “Ninety-two percent of respondents from property casualty companies said that their company had implemented some sort of ESG consideration with over 80% of the respondents saying they added it with the last two years.”

Mr. Bradford said Conning reminds clients that climate change is a journey, starting with education and understanding for the investment teams and board. He said from there, it’s critical that the corporation have a strategy that trickles down. “We try hard not to impose a moral view of an industry, or of an issuer, in our work with clients,” Mr. Bradford explained. “It's not intended to be an exclusionary exercise for the portfolios; it's meant to be a process to help our clients understand how climate risk impacts portfolios under different scenarios.” Conning built a Climate Risk Analyzer tool to support clients with these difficult decisions.

Mr. Kelly asked Mr. Bradford about plans for Conning to return to the office after working remotely due to COVID-19 health concerns. Mr. Bradford said they hope to return in the coming months and praised his team for the work done to date in the remote environment. “We as a leadership team believe that in the investment business it's hard to sustain important aspects of a corporate culture, and to grow and develop people in a 100 percent remote format,” Mr. Bradford noted. “So, we believe that it's important to have a combination of time together, while at the same time providing people flexibility.”

For the full conversation, view the video above and check out all the sessions in our AAIS Pulse video library.