Monday Morning Memo: How The Coronavirus Crisis Hit Income-Oriented Investors

Monday Morning Memo: How The Coronavirus Crisis Hit Income-Oriented Investors

The quantitative easing of central banks in the aftermath of the financial crisis (2008) and the so-called Euro crisis (2011) led to record low interest rates for corporate and government bonds all around the globe. The resulting low-income environment led investors to buy dividend stocks, as dividends (and therefore also dividend strategies/income funds) were marketed as the new source of stable income, especially as some corporates payed higher dividends on their stocks than interest for their bonds.

This has changed since the COVID-19 pandemic led to a global shutdown that hit the revenue streams of listed companies, as well as the economies massively. The decrease in revenues and the unclear outlook for the future resulted in cut backs on dividends, as corporates aim to use their cash to survive the crisis. Since this is understandable from a corporate point of view, these decisions have a massive impact on investors since they are losing another source of regular income to fulfill their duties or pay their bills. In addition to the actions on the corporate side, the central banks around the world flooded the markets with new money to help the economies to cope with the effects from the shutdown. The restart of quantitative easing programs led to a new dip in interest rates that will prolong the low interest rate environment with all it’s negative effects for income-oriented investors.

As markets started to fall due to the lower revenue expectations, the announced dividend cuts were another disappointment for investors since cash dividend payments are seen as a kind of cushioning in rough markets. As a result, investors in dividend strategies or income funds might have sold their shares, which may have fueled the downturn of the markets further.

That said, I would assume that the current environment with regards to dividend policies will hit the returns of passive strategies harder than actively managed funds because passive funds have to wait until their next scheduled review to adapt to the new environment. Meanwhile, actively managed funds can react immediately to the changes and may be able to buy shares of those companies which are able to maintain a dividend payment even during this crisis.

But it is not only dividends that have been hit by the crisis. As a result of the unpredictable future with regard to global economic growth and the resulting revenues of companies, we may witness a revaluation on the corporate bond market. This is because a number of issuers may face a downgrade of their rating, which will in turn lead to a widening of the credit spread and a loss for existing bond holders, as the price for the bond will be adjusted to the new spread. This may lead to a meltdown of assets in income funds which are heavily invested in high yield corporate debt, as this was, in addition to dividends, another main sources for income over the past few years.

But it is not only funds that have been hit by this. From my point of view, this is also a major risk for the ability of both public and private pension entities to continue contributions to pensions, as also these kind of saving schemes use dividends and high yield bonds to overcome some of the struggles in a low interest rate environment. This is despite missing dividend payments likely being only be a short-term income issue since it is expected that companies will start to pay dividends as soon as they can. However, it is unsure if the dividend payments will reach the levels they had prior to the coronavirus crisis.

The impact from a possible decrease in assets in conjunction with falling interest rates and the subsequent prolonged low interest rate environment will impact pension funds in two ways over the short, as well as the long, term. While the short term is mainly affected by the low income from the decreased interest rates, the pressure on interest rates will exacerbate an already challenging environment for valuing pension liabilities and drive funded ratios further down over the long term.

To sum this up, I would assume that the major impact of the cuts in dividends will affect investors in dividend strategies or income funds only in the short-term, even as they should lower their mid-term expectations for dividend yield since it will take some time for the corporates to reach revenues on the pre-crisis level. Public and private pension entities should also be able to keep their payments stable in the short term since they may have reserve funds for a year such as this. That said, I assume that participants in income funds and pension schemes should prepare themselves for lower than expected pension payments over the long run.

The views expressed are the views of the author, not necessary those of Refintiv.


Author: by Detlef Glow.


Nicaragua Foreign Direct Investment | 2006-2019 Data | 2020-2022 Forecast

Nicaragua Foreign Direct Investment | 2006-2019 Data | 2020-2022 Forecast

Foreign Direct Investment in Nicaragua increased by 123 USD Million in the first quarter of 2019.

Foreign Direct Investment in Nicaragua averaged 160.54 USD Million from 2006 until 2019, reaching an all time high of 443.50 USD Million in the first quarter of 2016 and a record low of 45.70 USD Million in the fourth quarter of 2018. This page provides – Nicaragua Foreign Direct Investment- actual values, historical data, forecast, chart, statistics, economic calendar and news. Nicaragua Foreign Direct Investment – values, historical data and charts – was last updated on May of 2020.

Foreign Direct Investment in Nicaragua is expected to be 24.18 USD Million by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate Foreign Direct Investment in Nicaragua to stand at 199.41 in 12 months time. In the long-term, the Nicaragua Foreign Direct Investment is projected to trend around 201.83 USD Million in 2021 and 200.00 USD Million in 2022, according to our econometric models.

Please Paste this Code in your Website


Vietnam: Reinsurer's operating performance seen as strong

Vietnam: Reinsurer’s operating performance seen as strong

The operating performance of Vietnam National Reinsurance Corporation (VINARE) as strong, as evidenced by a five-year average combined ratio and return-on-equity (ROE) ratio of 93.2% and 8.9% (2015-2019), says AM Best says in a report.

Despite this, the company’s combined ratio deteriorated to 100.4% in 2019 from 92.3% in 2018, following increased loss experience, particularly from property, marine hull and fishing boat lines of business, notes AM Best.

In addition, a shift in the company’s business mix in 2019, which saw greater allocation towards lower margin personal accident business, also resulted in higher combined ratios.

Prospectively, AM Best expects underwriting results to improve following VINARE’s portfolio remediation measures, rate increases and tighter underwriting standards.

The international credit rating agency has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” of VINARE. The outlook of these credit ratings is stable.

The ratings reflect VINARE’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

VINARE’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio.

The company’s balance sheet strength assessment is further supported by the stability of its risk-adjusted capitalisation, modest underwriting leverage and retrocession counterparties of good credit quality.


Investment income in 2019 continued to be supportive of overall operating earnings as evidenced by the investment yield including realised gains of 7.8% in 2019 (2015–2019 average: 7.4%).

However, excluding the one-off realised gains, investment returns in 2019 have been impacted by the volatility in the capital markets. Whilst further weakness in the capital markets could continue to dampen investment income arising from the company’s equity holdings, the impact and volatility to overall investment income is in part mitigated by the diversified sources of investment income arising from different asset classes.

AM Best views VINARE’s investment portfolio to be of moderate risk. Although the majority of investments assets are allocated to term deposits, the company’s investment strategy is characterised by a moderate level of equity investment leverage, private equity investment holdings that create asset liquidity risk, and investments that are held in domestic insurers, which in AM Best’s view creates correlation risk with the company’s financial performance.


Other balance sheet considerations include the company’s high dependence on retrocession to manage its exposure to catastrophe events, accumulations and large single risks, and its high dividend payout ratio.

Whilst retained earnings have remained sufficient to support business growth historically, robust business growth in 2019 has lowered the company’s regulatory solvency margin ratio and is expected to continue doing so over the near term.

Nonetheless, the company is expected to still maintain a healthy buffer above the regulatory minimum solvency level.

Business profile

AM Best assesses VINARE’s business profile as neutral. The company is the larger of two domestic reinsurers in Vietnam, with GWP of VND2.2tn ($96m) in 2019. The company benefits from long-standing relationships with a number of local cedants, including some insurers that hold a minority stake in VINARE, which provides a competitive advantage for market access.

The company’s underwriting portfolio is moderately diversified by line of business, and to some extent by geography with over 75% of GWP emanating from Vietnam.

AM Best considers the company’s ERM framework as appropriate given the size and complexity of its operations. AM Best views the company’s risk management framework and capabilities to have benefited over a number of years from the technical support and expertise provided by Swiss Reinsurance Company, VINARE’s second largest shareholder.


Monday Morning Memo: How The Coronavirus Crisis Hit Income-Oriented Investors

Leave a Reply

Your email address will not be published. Required fields are marked *