Credit & Insurance

Credit is the clearest place to see risk being priced, for better or worse. Our work covers corporate, private lending, structured credit and asset-backed strategies, with insurers in mind as the main investors, since they need steady income over very long periods. We model the bad scenarios first: rising defaults, thin liquidity, correlations that jump.

Lending looks safe for most of the cycle and then stops looking safe all at once. Loans that seemed unrelated start to fail together, collateral is worth less than assumed, and the exit that looked available disappears. Much of our research is about that moment: which structures protect the lender, which only appear to, and how much of the stated margin is payment for a risk that was never properly measured.

“Lending looks safe for most of the cycle and then stops looking safe all at once.”

Private lending has grown quickly as banks have pulled back from parts of the market, particularly mid-sized companies that are too large for a bank’s standard product and too small for the public bond market. That gap is real, but it comes with its own risks: weaker covenants, less transparency and no easy way to sell a loan when you need to. We study both sides of that trade. In structured and asset-backed credit, we look at what sits underneath: the quality of the receivables, loans or assets, how the cash flows are split between tranches, and what happens to each tranche when the pool deteriorates.

Insurers are the investors we have in mind most, and they are demanding ones. Their liabilities run for decades, so they need income that arrives on time and holds up in a bad year. They also work under capital rules that make some assets far more expensive to hold than others, such as Solvency II in Europe and the risk-based capital framework in the United States. A credit strategy that ignores this is of little use to them. So we look at credit through the insurer’s eyes: how an investment is treated for regulatory capital, how it fits the maturity of the liabilities, and how it would behave in a stress test.

Underwriting a loan and managing a portfolio are different skills. We put equal weight on both: choosing what to lend against, and then watching concentration, correlation and liquidity so that no single event can do too much damage.

Status: credit risk research done and portfolio models finished. Next is building what insurers need from a manager, which is mostly reporting and governance.