IN THIS LIST

InsuranceTalks: A Robust Rotation Strategy Designed to Reflect Equity Market Dynamics

InsuranceTalks: Exploring ESG Implementation in the Insurance Space

Why Index Construction Matters in Colombian Equity Benchmarks

Do Physical and Transition Climate Risks Translate Into Investment Risks?

Global Sector Primer Series: Health Care

InsuranceTalks: A Robust Rotation Strategy Designed to Reflect Equity Market Dynamics

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Phillip Brzenk

Head of Multi-Asset Indices

Insurance Talks is an interview series where insurance industry thinkers share their thoughts and perspectives on a variety of market trends and themes impacting indexing.

Kun Qiu is Co-Head of Derivatives Trading and Analytics at Security Benefit where his team manages a notional fixed index annuity (FIA) derivatives portfolio of more than USD 19 billion and seeks to help develop the next generation of FIA products.

S&P DJI: Security Benefit has been a leader in so-called custom indices in FIA products. How did that happen, and why was it important to Security Benefit to innovate in that way?

Kun: After the Global Financial Crisis, the industry was ripe for change in terms of smarter diversification and downside protection. We stepped up our game and became a pioneer of sorts by bringing to market a broad range of underlying index options—across asset types—in our FIA product line that the industry has followed. Later in 2014, we began a strategic focus on building a premier investment team at Security Benefit. The team has been diving deeply into the existing FIA market. We keep looking for innovative index strategies driven by historically proven academic research. We are continuously pushing our technology to achieve better hedging efficiency as well, as we seek to deliver more interest potential for our customers.

S&P DJI: What role do indices play in the information Security Benefit provides to consumers?

Kun: At Security Benefit, our products that are based on indices (like FIAs) are sold through independent, third-party financial professionals who choose to do business with us. We don’t sell directly to consumers, and we have an indirect line of communication to them through the materials we create to explain how our products may be used. Consumers, along with their financial professionals, are better positioned to make the investment planning decisions for their individual situations.

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InsuranceTalks: Exploring ESG Implementation in the Insurance Space

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Margaret Dorn

Senior Director, Head of ESG Indices, North America

Insurance Talks is an interview series where insurance industry thinkers share their thoughts and perspectives on a variety of market trends and themes impacting indexing.

Clara Bacheré is in Insurance Equity Derivatives Sales at BNP Paribas Securities Corp in New York City, and works closely with insurance carriers and distributors on their annuities product development through customized indices and innovative payoffs, as well as their flow and hedging execution needs.

Maggie is Senior Director, ESG Client Engagement, North America at S&P Dow Jones Indices (S&P DJI). In her role, she assists in the strategy for developing ESG indices for the North American market, from best-in-class approaches like the world-renowned Dow Jones Sustainability Index to broad-market ESG alternatives and core solutions like the S&P 500® ESG Index. She also serves as a global spokesperson for S&P DJI’s ESG Indices, educating the market on the values of ESG investing and our industry-leading ESG lineup.

S&P DJI: Tell us a bit about your role and how you serve the insurance space.

Clara: BNP Paribas services insurers in multiple capacities, and the group that I have the pleasure of working with is our Global Markets Equity Derivatives Division. My part of the team specializes in serving insurance carriers and distributors by contributing to the development of their annuities and life products from A to Z, through customized products and designs such as innovative indices, creative crediting strategies, top notch sales and marketing support, both pre- and post-launch, as well as competitive hedging services. We avoid a one-size-fits-all mindset and actually tailor our approach based on each client’s specific needs and distribution preferences while working closely with them to achieve their vision through cost-effective, innovative products. Together, we target where they would like to be over the next 2-5 years and help them through every step of the way, no matter their starting point. More generally, I find the banking industry to be an exciting place at the forefront of innovation as we are continuously challenging ourselves to find smarter ways of offering better product economics for end clients, all while lowering insurers’ costs.

Maggie: Within the ESG Product Strategy space, my role is to remain focused on the rapidly changing world of sustainability indexing and ensure that S&P DJI remains at the forefront of innovative index construction that addresses the evolving needs of the sustainability-minded investor. Products tied to S&P DJI benchmarks have long been at the forefront of the fixed indexed, variable, and structured annuity markets, as well as the indexed universal and variable life markets. As the indexing needs of the insurance industry have continued to evolve, so too has the range of indexing strategies that S&P DJI has designed to address those needs, including, more recently, ESG solutions. Although ESG indices have more recently gained traction with institutions worldwide, S&P DJI has long been a leading provider of sustainability-driven index solutions, including the launch of the renowned Dow Jones Sustainability Index over 20 years ago. 

S&P DJI: 2020 was a watershed moment for ESG investing. How have you seen interest in ESG evolve over time within the insurance industry?

Maggie: Insurance organizations worldwide are becoming increasingly aware of ESG risk factors and their potential impact on their investment portfolios. Large institutions like insurance companies are facing greater pressure from external shareholders to better manage their exposure to things like environmental and social risks. As investors progressively demand ESG options and information related to the environmental and social responsibility of their investments, providers of insurancebased investment products face pressure to meet this demand. More widely, insurers are looking to confirm that their own practices are ethically sound from an ESG perspective in order to maintain continued support from investors and customers. A useful framework to examine in this context is the UN Environment Programme Finance Initiative Principles for Sustainable Insurance (PSI). The PSI is centered around the idea that insurers can play a vital role in encouraging sustainable economic development.

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Why Index Construction Matters in Colombian Equity Benchmarks

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Silvia Kitchener

Director, Global Equity Indices, Latin America

INTRODUCTION

Introduced on Oct. 24, 2013, the S&P Colombia Select Index is one of the leading benchmarks measuring the Colombian equity market.  Designed to track the largest and most liquid Colombian stocks, this index was authorized by the Colombian Ministry of Finance and Public Credit (Ministerio de Hacienda y Crédito Público [MHCP]) in 2015 to sit alongside the MSCI COLCAP Index as the only two domestic equity components of the Índice Agregado de Renta Variable Local (IARVL).  The IARVL is a composite index calculated by the MHCP to track the performance of the Colombian equity market and serve as a benchmark for private and public institutional portfolios, including those of pension funds.

While the S&P Colombia Select Index and MSCI COLCAP Index share the objective of measuring the performance of the local equities market, the S&P Colombia Select Index’s inclusion of single-company and sector caps results in a more diversified measure of the Colombian equities market.  Despite the larger number of securities in the MSCI COLCAP Index, it is a more concentrated index at the company and sector level, compared with the S&P Colombia Select Index.  These variations in exposure have also led to meaningful differences in risk/return profiles historically, with the S&P Colombia Select Index outperforming the MSCI COLCAP Index over the mid and long term. 

METHODOLOGY OVERVIEW

The S&P Colombia Select Index methodology is composed of four sections: the underlying universe, eligibility criteria, index construction, and index maintenance.

A Closer Look at the Universe

The S&P Colombia Select Index methodology starts with a universe composed of the S&P Colombia BMI, a sub-index of the S&P Global BMI, which has eligibility requirements that must be met by all emerging market companies.  Additionally, the universe can be expanded to include Colombian companies trading on the Colombia Stock Exchange (Bolsa de Valores de Colombia [BVC]) that meet the eligibility criteria of the S&P Colombia Select Index, so that it contains at least 14 stocks.

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Do Physical and Transition Climate Risks Translate Into Investment Risks?

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Jaspreet Duhra

Managing Director, Global Head of ESG Indices

As climate risk becomes better understood, interest in ESG investing grows. Jaspreet Duhra, Global Head of ESG Indices, and Muhammad Masood, Director of iShares Sustainable Investing, explore what’s driving heightened adoption of ESG strategies, ways to assess companies’ physical and transition climate risks, and the wide range of targeted ESG strategies now accessible to market participants looking to mitigate risks like these.

S&P DJI: ESG investing has become a more mainstream notion in recent years. What catalysts do you see driving that shift?

Muhammad: We are seeing a shift toward sustainable investing. To put this into context, EMEA investors are anticipating nearly 50% of their AUM to be in sustainable investing by 2025—this is up from just 21% in 2020.1 We have already started to see this fundamental reallocation of capital; in 2020, there were net inflows of USD 425 billion into sustainable assets globally. In H1 2021, we have already seen USD 353 billion.

This shift into sustainable investing has resulted from a range of factors, driven by changing consumer and investor preferences, improved sustainability data, and more sustainable investment options designed to meet various ESG and investment goals and the requirements of increasing regulation. This is fueling a global reallocation of capital toward more sustainable companies, which we expect to continue over many years.

S&P DJI: What role do you see for index-based strategies and ETFs in ESG investing?

Muhammad: Index investing has become a more common option for many investors looking to integrate sustainable considerations into their portfolio, and we see this through asset growth. AUM in index mutual funds and ETFs stands at over USD 630 billion as of June 2021, compared to just USD 469 billion at the end of 2020 and USD 220 billion at the end of 2019.

Much of this demand comes down to the choice that exists in the indexing space. Sustainable index funds and ETFs are covering exposures across almost every corner of the equity and fixed income investment universe and investors can also choose the sustainable approach that works for them. They can pick a business-involvement screened product, an ESG-tilted fund that maintains minimal tracking error with its underlying index, or a product that selects only the top ESG performers. Thematic and impact investing are also possible through ETFs, for example through clean energy and green bond ETFs. The rules-based approach adopted by index funds and ETFs can bring greater control and transparency to sustainable investing. Investors can learn the datasets being used, the criteria for security selection and weighting, and ultimately have full transparency into the ETF holdings, potentially giving them insight into why certain companies or issuers are being chosen and why others are excluded. As the regulatory landscape around sustainability evolves and investors look to adapt to this, index-based investing can play an instrumental role. 

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Global Sector Primer Series: Health Care

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Michael Orzano

Senior Director, Global Equity Indices

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Hector Huitzil Granados

Analyst, Global Equity Indices

INTRODUCTION

The Global Industry Classification Standard® (GICS®) assigns companies to a single classification at the sub-industry level according to their principal business activity using quantitative and qualitative factors, including revenues, earnings, and market perception.  The sub-industry is the most specific level of the four-tiered, hierarchical industry classification system that includes 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries.

The Health Care sector includes companies primarily engaged in:

  • Manufacturing healthcare equipment and devices;
  • Owning and operating healthcare facilities;
  • Research, development, or production of pharmaceuticals;
  • Research, development, manufacturing, or marketing of products based on genetic analysis and genetic engineering; or
  • Enabling the drug discovery, development, and production continuum.

As outlined in Exhibit 1, the S&P Global 1200 Health Care comprises 2 industry groups, 6 industries, and 10 sub-industries, and it includes all companies in the S&P Global 1200 that are classified as members of the GICS Health Care sector.

Launched in September 1999, the S&P Global 1200 provides efficient exposure to the global equity market.  The index is float-adjusted market-capitalization weighted and measures the performance of large-cap stocks from major markets around the world.  Capturing about 70% of the global market capitalization, the S&P Global 1200 is constructed as a composite of seven country and regional headline indices, many of which are accepted leaders in their regions.  These include the S&P 500® (U.S.), S&P Europe 350®, S&P TOPIX 150 (Japan), S&P/TSX 60 (Canada), S&P/ASX All Australian 50, S&P Asia 50, and S&P Latin America 40.

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