OCTOBER 2014

Exploring the latest asset allocation challenges, diversification strategies and supporting operational and risk management updates in the current low rate environment.

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CONTENTS

INSURANCE ASSET MANAGEMENT, NORTH AMERICA 2014

SECTION 1THE DOUBLE-EDGED YIELD SWORD

1.1 ROUNDTABLE 8How can insurers balance asset value preservation with yield seeking strategies and prepare for a sharp interest rates rise?

Moderator:• JessicaMcGhie,SeniorPublishing&StrategyManager,ClearPathAnalysis

Panelists:• RipReeves,ChiefInvestmentOfficer/Treasurer,AEGISInsurance• ThomasFrazier,ChiefInvestmentOfficer,MainStreetAmericaGroup• AnthonyGrandolfo,ChiefInvestmentOfficer,Validus(Insurance)Holdings

1.2 INTERVIEW 12Are insurers restricted by today’s regulatory parameters?

Interviewer:• NoelHillmann,ManagingDirector,ClearPathAnalysis

Interviewee:• AnnettedenOuter,VicePresidentofProductManagement,StateStreetGlobalExchange

SECTION 2ALTERNATIVE ASSET EXPLORATION AND DIVERSIFICATION

2.1 ROUNDTABLE 16Re-designing your allocation plan to capitalize on non-correlated assets

Moderator:• MargieLindsay,Editor,AlphaJournal

Panelists:• MarkRose,SeniorVicePresident-ChiefInvestmentOfficer,ArgoGroupU.S.• AaronDiefenthaler,ChiefInvestmentOfficer,RLIInsuranceGroup• JohnGauthier,ChiefInvestmentOfficer,AlliedWorldAssurance

2.2 INTERVIEW 20What asset allocation governance trends must insurers heed?

Interviewer:• NoelHillmann,ManagingDirector,ClearPathAnalysis

Interviewee:• IanCastledine,GlobalHeadofInvestmentRiskandComplianceProduct,NorthernTrust

SECTION 3UNLOCKING FRESH STRATEGIES

WHITE PAPER 24Flexible fixed income investing with an insurance mindset• SamiraMattin,ClientPortfolioManager,VicePresident,CutwaterAssetManagement

Justin Wang BusinessConsultingLeader,NationwideInsurance

Paul FinlaysonSeniorVicePresident,GlobalProductManager,NorthernTrust

Samira MattinClientPortfolioManager,VicePresident,CutwaterAssetManagement

Mark RoseSeniorVicePresident-ChiefInvestmentOfficer,ArgoGroupU.S.

Aaron DiefenthalerChiefInvestmentOfficer,RLIInsuranceGroup

Rip Reeves ChiefInvestmentOfficer/Treasurer,AEGISInsurance

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CONTENTS

INSURANCE ASSET MANAGEMENT, NORTH AMERICA 2014

SECTION 4BENCHMARKING INVESTMENT RISK

4.1 WHITE PAPER 30When the art and science of risk appetite meet• JamesWong,SeniorVicePresident,RiskManagement,AssuredGuaranty

4.2 EXPERT DEBATE 34Exploring the synergies of enterprise risk management (ERM) systems in flagging investment commands

Moderator:• JessicaMcGhie,SeniorPublishing&StrategyManager,ClearPathAnalysis

Panelists:• VladUhmylenko,HeadofEnterpriseRiskManagement,BuildAmericaMutual• CeliaKapsomera,HeadofFinancialRiskManagement/Finance,AXALiabilitiesManagers

4.3 WHITE PAPER 37Managing and monitoring alternative asset allocations• PaulFinlayson,SeniorVicePresident,GlobalProductManager,NorthernTrust

SECTION 5NAVIGATING THE REPORTING HORIZON

5.1 EXPERT DEBATE 46Coping with the growth in reporting

Moderator:• NoelHillmann,ManagingDirector,ClearPathAnalysis

Panelists:• EricGwilliam,CPA,InsuranceAssetManagementBusinessDevelopment,ClearwaterAnalytics

• MatthewMalloy,ManagingDirector,JPMorganAssetManagement

5.2 INTERVIEW 44Leveraging today’s technology to bridge the gap between insurers and asset managers• RileyThomas,BusinessDevelopmentManager,AssetManager&InsuranceServices,ClearwaterAnalytics

5.3 INTERVIEW 47Developing a cohesive but flexible system to ensure information is shared, liabilities matched and forecasting standardized

Interviewer:• JessicaMcGhie,SeniorPublishing&StrategyManager,ClearPathAnalysis

Interviewee:• JustinWang,BusinessConsultingLeader,NationwideInsurance

SECTION 6HARMONISING OUTSOURCING ARRANGEMENTS

INTERVIEW 50How crucial is outsourcing in an insurer’s toolbox?

Interviewer:• MargieLindsay,Editor,AlphaJournal

Interviewee:• KrishnanEthirajan,ChiefOperatingOfficer,IronshoreInsurance

Krishnan Ethirajan ChiefOperatingOfficer,IronshoreInsurance

Riley Thomas BusinessDevelopmentManager,AssetManager&InsuranceServices,ClearwaterAnalytics

James WongSeniorVicePresident,RiskManagement,AssuredGuaranty

John GauthierChiefInvestmentOfficer,AlliedWorldAssurance

Annette den Outer VicePresidentofProductManagement,StateStreetGlobalExchange

Thomas Frazier ChiefInvestmentOfficer,MainStreetAmericaGroup

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THE DOUBLE-EDGED YIELD SWORD

SECTION 1

How can insurers balance asset value preservation with yield seeking strategies and prepare for a sharp interest rates rise?

1.1 ROUNDTABLE

Are insurers restricted by today’s regulatory parameters?1.2 INTERVIEW

8

1.1 ROUNDTABLE

Moderator

How can insurers balance asset value preservation with yield seeking strategiesand prepare for a sharp interest rates rise?

Panelists

Rip Reeves ChiefInvestmentOfficer/Treasurer,AEGISInsurance

Thomas Frazier ChiefInvestmentOfficer,MainStreetAmericaGroup

Anthony Grandolfo ChiefInvestmentOfficer,Validus(Insurance)Holdings

Jessica McGhie SeniorPublishing&StrategyManager,ClearPathAnalysis

Jessica McGhie: Are you confident that your portfolio is poised to respond quickly and decisively to potential interest rate rises and increased pressure in the fixed income space?

Thomas Frazier: I don’t know that anybody could truly say they are 100% confident there. We don’t engage in speculative interest rate hedging strategies and I would say that it’s difficult to accurately predict when to go short in duration and when to put duration back on. Historically, the odds are not in favor of getting this right. However, we aim to guard against interest rate risk using a laddered duration maturity structure in our bond portfolio and over the last 10 years, this has helped us in conjunction with a positively convexed profile. We’ve generated a relatively high level of income in protecting against the amount of principle that has to be reinvested at ever declining yields.

That said should yields rise significantly this posture of a laddered duration will provide new cash flows from maturities which we can then reinvest to build back our book yield. It takes time but given we’re a property and casualty (P&C ) insurance company our liabilities are not marked to interest rate changes. Furthermore, the bond

portfolio is immunised by our statutory accounting convention which allows us to hold bonds at amortised cost and as a result, we operate largely on a buy and hold strategy. Having greater investment income associated with neutral duration to a benchmark can help cushion results against underwriting volatility and in the long run, yield and total return mustn’t necessarily converge. The key is to have a long-term time horizon.

Anthony Grandolfo: The question points to two aspects of portfolio management. Firstly yes I do feel quite confident that our portfolio is positioned correctly for a different interest rate environment because we tend to be quite short in duration and therefore will naturally be able to reinvest at higher rates as the interest rate environment changes. We are also structured in a way that ensures our core portfolio is well aligned from a liquidity and duration perspective with our core liabilities -plus a contingent bucket- for the risk that tomorrow’s liabilities might look significantly different.

The second aspect of the question relates more to the tactical opportunity to position one’s self in order to take advantage of market timing events, and in that case, we tend not to try

to trade the market or market time to a significant degree. This is because we’re not looking to make significant tactical changes around trends in interest rates. However, we do seek to make regular asset allocation changes across sectors when relative value relationships change meaningfully or our capacity to take risk changes.

We’ve all been operating in an environment of very unusual market conditions in that central banks globally have had a huge impact on “artificially” pricing fixed income assets. However, there has also been an extremely long lead time for investors to prepare for higher rates as a result of the Federal Reserve changing their policy given their persistent “considerable time” guidence. Consequently there has been plenty of time to ensure that our portfolios are positioned accordingly to a new monetary policy.

Rip Reeves: Within Aegis’ portfolio, we are employing portions of both Anthony and Tom’s strategies. Similar to Anthony, we have positioned ourselves short of our liability duration targets. Therefore should a rising rate environment occur, we should perform better relative to our liabilities. One of the investments we’ve implemented to help shorten duration is the use of

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How can insurers balance asset value preservation with yield seeking strategies and prepare for a sharp interest rates rise?

bonds with adjustable-rate coupons. On the other hand, similar to Tom, we’ve laddered a short maturity schedule. Therefore, as interest rates rise we will have cash flow from the portfolio we can then reinvest at higher rates.

I still think it’s challenging to feel confident with respect to a bond portfolio’s performance in a rising rate environment, especially if you look at forward rates. They suggest much higher rates over the next couple of years, which is particularly difficult for bond investors such as insurance companies.

Although we utilize some of the best analytical tools in the business, they’re still imperfect. While we model our portfolio performance, risk and correlations, it never tends to work out like it does on paper. Therefore, I still find it challenging to feel confident even though like my fellow panelists we’ve implemented strategic changes in the portfolio to brace for what’s coming.

Anthony: To add to both comments I would say that one thing that makes the challenge more difficult to respond nimbly in a market like today’s, is that liquidity in the fixed income market place has changed significantly over the past few years.

So potentially all of the excess liquidity that has been provided to financial markets by central banks may have masked what has in fact been a significant change in the role of intermediation capital across the fixed income space. When the environment changes as it inevitably will, the ability to react quickly will be significantly diminished from the past. In that regard, it is important to point out that today’s transactional ease and liquidity is going to become increasingly more challenging.

Jessica: As the Federal Reserve moves closer to the end of quantitative easing (QE) will insurers’ bond

portfolio be faced with a treasury bubble?

Anthony: Certainly not a treasury bubble. We’ve been faced with this unusual environment where prices have been artificially elevated or yields forced lower by central banks across the world but that’s a far cry from a bubble. Instead it really comes down to what happens to inflation going forwards as to whether one could argue we’re in a treasury bubble.

If you look at the yield curve today the front end has had some negative real interest rates for quite some time. The very front end of the curve is priced based on what future, overnight interest rates are likely to be and given that the Federal Reserve has been on hold for a long time it’s not unusual that rates have remained very low at the front end. Of course we also have a very steep yield curve whereby the market is already pricing in future interest rate increases.

If you look at the five year forwards, the market is pricing in a 3.5% rate and so if inflation expectations or actual inflation stays in this 2% environment for the next several years, then having a positive 100 to 150 basis point real interest rate in five years time won’t actually be out of context with long-term historical trends. Additionally if the Federal Reserve’s neutral fed-funds rate is something less than it has been in the past, so rather than 4% it’s 2.5 to 3%, than that would also be perfectly consistent with today’s forward pricing of at least the intermediate part of the yield curve. Fixed income assets in general are certainly a bit overvalued in my view but definitely not in the context of a bubble.

Jessica: Tom do you agree that fixed income assets are overvalued?

Tom: It might feel like that on a relative value basis but largely speaking, I would say that the Federal Reserve’s efforts to keep interest rates low have certainly been effective. What remains less clear, as their QE winds down, is how well the long end of the yield curve will be controlled.

Amid the tapering of purchases we have seen long-term yields fall and the yield curve flatten because of other buyers stepping in. There may be other trends that are working globally, such as demographics, that pressure yields lower and create additional demand for these longer term maturities. It’s difficult to tell what’s really going on here but I’d be reluctant to say that they’re overvalued at this point. What is important though is to remain diversified; we own very little government bonds and treasuries, given our emphasis on yields as I discussed. But when spreads get to all-time lows we may need to rethink our underweight to governments.

Rip: Like Anthony mentioned, we’ve known for some time QE was going to end; however as a significant bond investor, it won’t feel good when interest rates rise. Central banks have artificially elevated government bond prices but saying we’re in a bubble sounds a bit extreme to me. Even though we feel artificially overvalued at current levels, there are other developed economies with Government yields lower than ours. Numerous political risks should certainly keep a bid to treasury levels, even in a rising rate environment.

“if the Federal Reserve does a reasonable job in engineering a steady rise in rates, equity valuation should react positively.”

10

How can insurers balance asset value preservation with yield seeking strategies and prepare for a sharp interest rates rise?

Rising rates still makes the knot in my stomach a little bigger!

Jessica: What are the indicators and flags for identifying when to increase treasury allocations and reduce exposure to riskier assets?

Rip: I concur with a strategy Tom and Anthony have already mentioned. In a rising rate environment one of the tools you use is yield to help cushion the decrease in principle value.

This is an argument in strategic analysis regarding treasury allocations in that they should be lower in a rising rate environment. We’ve been implementing transitions out of treasuries and into higher yielding investments (risky assets). Everyone appears to have a different definition of what a risky asset is. At AEGIS we define a risky asset to be anything other than our high-grade, core fixed income investments. The indicators and flags will differ whether we’re talking about equities, high-yield bonds, hedge funds, private equity or direct lendings.

However, the most important flag we’re going to look at with respect to our below investment grade investments will be the level of default risk. Currently that’s historically low and forecast to remain low. With respect to equities, if the Federal Reserve does a reasonable job in engineering a steady rise in rates, equity valuation should react positively. The Fed tightens policy as economic conditions gain strength, and a strong economy should bode well for traditional stock investments.

Ultimately the indicators will differ according to the types of asset classes you’re analysing.

Tom: I agree because we take a similar definition for risky assets. As I referred to earlier, when you’re no longer being paid enough to take that

risk or when investors appear to be overly complacent about being paid so little you should take note. For example in 2007 credit spreads reached all-time lows and at that point it should have been recognized as a sign to buy treasuries and I suspect, we’ll be faced with that again at some point in the future. We should be asking whether we are being paid enough with the potential of the default risk that’s out there.

Anthony: It’s certainly consistent with how I operate. Any investor always needs to ask how well they are being compensated for the risk that they’re taking; particularly given that currently spreads have tightened quite a bit.

We’ve also been in a quite favourable credit environment but because people tend to have short memories we do have to remind ourselves that whilst spreads are tight, and fundamentals are relatively healthy, we are coming towards the end of the current credit cycle. At this stage we observe more lax underwriting standards and are seeing this particularly in the below investment grade part of the fixed income market and so are consequently getting increasingly cautious from a risk point of view.

Another point I mentioned earlier was the need to be compensated for liquidity risk because even parts of the

market that have been historically considered as quite liquid, investment grade corporate bonds for instance, are increasingly becoming less so. This is largely due to regulatory changes that have come out of post-crisis regulation such as Dodd-Frank and really reduced the willingness and ability of intermediaries to provide the balance sheet buffers and transactional liquidity traditionally present. Subsequently the market doesn’t really seem to be adding any additional risk premium and whilst we may see that change, we are ultimately moving to a more difficult environment.

Jessica: You have all mentioned that you’re not being compensated. Given that, how do you think insurers can be more creative in improving or creating more complex investment strategies without moving into too many risky assets?

Rip: The landscape of various strategies, and combination of strategies, we can employ is something all three of us are fully aware of in our analytical processes. To what extent we utilise these strategies in part depends on the level of risk we are willing to take on. For example, there are some insurers who heavily use various types of derivatives strategies, interest rate swap overlays and so forth to try to hedge against interest rate risk. Others will go into alternative investments and hedge funds that should have non-correlated qualities to their core bond and stock portfolios. The combination of strategies really depends on the individual insurer’s risk tolerance on an enterprise level and how much risk

“need to be compensated for liquidity risk...”

“there are some insurers who heavily use various types of derivatives strategies...”

11

How can insurers balance asset value preservation with yield seeking strategies and prepare for a sharp interest rates rise?

they can afford to take or want to take. There’s a lot of creativity regarding strategies, and the insurance industry by definition is not one size fits all. Therefore, what strategies you employ is dependent on the enterprise view and risk tolerance.

Jessica: Are there any particular alternatives that you are more interested in at the moment?

Rip: There isn’t one particular asset class we’re currently biased towards, but a pool of strategies we’re creatively investing in. We are not heavy users of hedge funds because we found our past experience to be underwhelming. However, like most bond heavy insurers we have an abundance of liquidity. Therefore, we have taken on some liquidity risk, through direct lending and bank loan type investments, and feel these are attractive alternative options.

Tom: We like private equity and like Rip are also positive towards to direct lending. Anthony touched on Dodd-Frank and its potential to create opportunities for additional proprietary lenders to come in and provide capital. In the bank loan space a lot of cash has been going in as of late and they are popular because of their low interest rate sensitivity and seniority in the capital structure. We have chosen non-rated proprietary lending vehicles because of their ability to provide greater returns with lower volatility. We are also fans of private equity vehicles but like Rip, do not like the hedge fund space and have

avoided it because of high fees and underwhelming returns as of late.

On the creativity question I would like to say that I regard this as a dangerous question. I don’t know if a fixed income portfolio for a P&C insurer is a space that you want to be creative in but rather feel that our focus, given the riskiness of our business upon the operations side, should be capital preservation. You should do your credit work using fundamental intrinsic value analysis and beware of complacency over narrow spreads. It doesn’t sound very creative but it’s not supposed to be.

Anthony: What Tom just said is very important and well-articulated. Investors, whether they’re insurance companies or individuals, always need to be careful about looking for creative ways to reach for yield when traditional avenues are unavailable because typically, you’re just trading one risk for another. A good example is where many insurance companies have gone into leveraged parts of the credit space as a way to shed interest rate duration. This is looking for floating rate assets that also happen to be leveraged credit instruments with the notion being that we’ve all been very worried about our interest rate duration risk but now as credit spreads tighten and underwriting standards deteriorate insurers must realise that they’ve now taken on another risk that may also be somewhat mispriced.

We are an operating business first, not an investment firm and so it is important to keep things simple and

not get lulled into the false sense of security that you can get from overly creative structures.

Many insurers have tried to be more creative by looking at the cross-correlations amongst different assets classes

because the only free lunch that exists in terms of adding some yield without taking undue additional risk, is through prudent diversification among uncorrelated assets. The difficulty we be knowing how correlations will change in times of stress. Certainly creativity in terms of widening the reach amongst different asset classes is a prudent way to approach things.

Jessica: Thank you for all for sharing your views.

“the insurance industry by definition is not one size fits all.”

12

1.2 INTERVIEW

Noel Hillmann: Is regulation restricting insurers from making appropriate investment decisions to meet their requirements in a low rate environment?

Annette den Outer: I wouldn’t say that regulation is necessarily restricting insurers. They are looking for new mechanisms to achieve additional yield and consequently are allocating more to alternatives and the bank loan space where they feel they can get more bang for their buck.

Regulation is causing insurers to introduce more flexible systems in order to handle the different investments that asset managers are bringing to the table. That may be having a system which can handle a new asset type or complex product, such as derivatives, because insurers need to be able to account and report on all investments if they are to be fully compliant with the regulators. Subsequently regulation and the increasingly sophisticated investments are having downstream implications for those responsible for accounting and reporting.

Noel: Given then that you feel impacts are primarily occurring downstream, in the back-office functions, would you say investment returns are impacted upon?

Annette: Insurers are investing in these increasingly complex securities in order to get a higher return. The issue though is that of course if you look behind the scenes they may involve a higher back-office soft dollar cost which needs to be factored in from start to finish in order to really asses the yield being

generated on these investable assets. For example, the bank loan industry is still very manual and lacking in standards. It’s not a problem on the investment side though as investment managers are making the investment decisions but it is a problem when you’re settling, accounting and reporting.

Noel: Can you quantify the type of costs? How have some of the more adept clients managed to mitigate those costs and reduce them in a fairly simple and succinct way?

Annette: Our larger clients are working with vendor partners to ensure systems meet their needs to mitigate the risks associated with traditional manual activity. They work in partnership to collaboratively put in place good processes and procedures to ensure that all regulatory requirements are met.

Smaller companies however struggle because they don’t have the resources or procedures in place and so inadvertently are finding themselves exposed to additional risks. As a vendor we strive to provide solutions to help clients of all size with that and even though they may have their own internal issues around accounting policy or reporting they need to make sure that both the needs of their organisation and the relevant regulatory body are met.

Noel: How are investment accounting reporting issues effecting the majority of your clientele?

Annette: The regulatory market is exploding in terms of new rules,

disclosures and requirements and creating an enormous amount of extra work, some of it manual, for our clients. Dodd-Frank and the new international accounting standards, IFRS 9 for example, both require huge overhaul of our client’s systems and operational practice and procedures.

A second challenge that I commonly see is that many of the new rules are much more interpretative and therefore people can draw multiple interpretations from the same paragraph of text. Consequently from an accounting perspective it causes a challenge in that flexibility needs to be built in to accommodate for those different interpretations of the rules and regulations. Clients are working with us and their internal and external auditors to come up with a common understanding as to how those regulations should then be applied.

Noel: Do you feel the regulations are fair and justified in their wording or are they trying to cover too many bases and by not being specific enough are having a detrimental effect on the insurance sector?

Annette: In terms of the required disclosures and information that needs to be put together by insurers I would say yes, it is a detriment. Regulations are largely still in response to the financial crisis of almost seven years ago but only now are its rules being finalised. Essentially we’re trying to solve past problems by introducing complicated processes and procedures which I am not entirely convinced will mitigate some of these historic risks. In my opinion regulators are unnecessarily increasing the insurer’s

Are insurers restricted by today’s regulatory parameters?

Interviewer Interviewee

Noel HillmannManagingDirector,ClearPathAnalysis

Annette den Outer VicePresidentofProductManagement,StateStreetGlobalExchange

13

Are insurers restricted by today’s regulatory parameters?

workload by dramatically increasing the volume of reporting required.

Noel: Given that increased reporting pressure is there a tendency amongst insurers to go overboard and actually create a fragmentation of processes? Do you think that as a result of regulation some insurers may have gone too far in their reports on individual investment portfolios?

Annette: No I don’t think insurers have gone too far. If people were starting with a clear playing field whereby they could concentrate only on present needs, rather than trying to build upon complex legacy systems then yes, certainly the solution would be very different. When you talk about a fragmented approach I think of insurers who have put in place solutions that may not have been optimal based on the timing of specific pieces of regulation. Of course this caused some fragmentation and to this I would say, having good data available, having easy access to that data and having flexibility in reporting and accounting on that data become the most important factors when trying to retrofit these solutions. This is what I argue to be the biggest challenge to the organisation.

Noel: Can insurers achieve greater cost efficiencies within their operations and does it require multi solutions or a simple change in operational thinking?

Annette: A lot depends on individual insurer themselves because there are significant differences between the methods and resources available to the small versus medium, versus large insurance clients. Larger organisations with multiple investment types and strategies probably have multiple solutions and systems whereas for the smaller organisations, much is still done manually. The answer could be different based on the size of the organisation but more of a difference is likely to stem from a change in operational thinking; people have to

take a step back and say what are we trying to accomplish here and do we have the tools to do it? We know that from a systematic perspective, every ten years clients assess the systems out there and explore multi-solutions and how best to leverage the offering to improve operational efficiencies in one system.

Noel: What attributes are sensible to have as part of one’s system? To give our insurance readers an idea as to what is feasible and what to avoid.

Annette: To me the biggest issue is data and whether or not you can get the data in and out, whether it will be in the right format, whether you can report on it and whether it will be compliant with all regulators concerned. Ultimately it’s really making sure that the data you need is available in a way in which your consumers are able to consume it; whether that is the internal management processes, regulatory or client reporting. You have to make sure that your data is good, easy to access and that it complies with all internal and external requirements.

Noel: Are there any other points you wish to make?

Annette: I would stress the importance of having the infrastructure and ensuring that it is flexible enough to respond to the regulatory changes in a timely manner. Insurers need to respond relatively quickly and in some cases it’s estimated that for some of the new rules it can take up to five years to get a system ready and ensure it is compliant but often, people aren’t allowing themselves the appropriate lead time. I can’t stress enough the importance of having a flexible system and working closely with your vendor partners to ensure they support you through all changes.

Noel: Is there a danger that insurers can become too dependent on a vendor partner by using a system which in your words is flexible

but actually is only understood completely by the vendor?

Annette: Of course that could be a danger and part of the challenge for insurers is making sure that when they enter a partnership with a vendor for a new system they run the appropriate vetting to be confident that they will be there for the long haul. The insurer must ask themselves how that vendor will respond to changes and whether they have the resources that they in turn need. Of course it can be a risk but not if insurance clients are thoroughly vetting the benefits and costs of entering into such a relationship.

Noel: Should insurers be fearful of that dependence or is the dependence quite natural in choosing a vendor partner, given that you can switch vendors if at a later date the relationship doesn’t work?

Annette: You have to go in being cautious because new vendors are always coming to the market and therefore, insurers should believe in their sustainability. Of course it comes down to a combination of the company’s backing, how long they have been around and what their long-term situation looks like. As with anything it needs to be addressed from multiple aspects in that not only do they have the ability to comply with these rules but they have to have the resources to continue providing a consistent service over the long-term.

Noel: Thank you very much Annette.