American Association of State Compensation insurance Fund
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CopperPoint Mutual Insurance Company
Phone: (602) 631-2000
Address: 3030 North Third Street
Phoenix, AZ   85012

State Compensation Insurance Fund
Address: 333 Bush Street
Suite 800
San Francisco, CA   94104

Pinnacol Assurance
Phone: (303) 361-4000
Address: 7501 East Lowry Boulevard
Suite 800
Denver, CO   80230-7006

Hawaii Employers' Mutual Insurance Co. Inc.
Phone: (808) 524-3642
Address: 1100 Alakea Street
Suite 1400
Honolulu, HI   96813

Idaho State Insurance Fund
Phone: (208) 332-2100
Address: 1215 West State Street
P.O. Box 83720
Boise, ID   83720-0044

Kentucky Employers Mutual Insurance
Phone: (859) 425-7800
Address: 250 West Main Street Suite 900
P.O. Box 83720
Lexington, KY   40507-1724

Louisiana Workers' Compensation Corporation
Phone: (225) 924-7788
Address: 2237 South Acadian Thruway
P.O. Box 83720
Baton Rouge, LA   70808

Maine Employers Mutual Insurance Company (MEMIC)
Phone: (207) 791-3300
Address: 261 Commercial Street
P.O. Box 11409
Portland, ME   04104

Chesapeake Employers’ Insurance Company
Phone: (410) 494-2000
Address: 8722 Loch Raven Boulevard
P.O. Box 11409
Towson, MD   21286-2235

SFM Mutual Insurance Company
Phone: (952) 838-4200
Address: 3500 American Boulevard West Suite 700
P.O. Box 11409
Bloomington, MN   55431-4434

Missouri Employers Mutual Insurance
Phone: (800) 442-0590
Address: 101 N Keene St
P.O. Box 11409
Columbia, MO   65201

Montana State Fund
Phone: (406) 495-5015
Address: 855 Front Street
P.O. Box 4759
Helena, MT   59604-4759

New Mexico Mutual Group
Phone: (505) 345-7260
Address: 3900 Singer Boulevard NE
P.O. Box 4759
Albuquerque, NM   87109

New York State Insurance Fund
Phone: (212) 312-7001
Address: 199 Church Street
P.O. Box 4759
New York, NY   10007

Workforce Safety and Insurance
Phone: (701) 328-3800
Address: 1600 East Century Avenue Suite 1
P.O. Box 4759
Bismarck, ND   58506-5585

Ohio Bureau of Workers Compensation
Phone: (800) 644-6292
Address: 30 West Spring Street
P.O. Box 4759
Columbus, OH   43215-2256

CompSource Mutual Insurance Company
Phone: (405) 232-7663
Address: 1901 North Walnut Ave.
P.O. Box 53505
Oklahoma City, OK   73152-3505

State Accident Insurance Fund (SAIF)
Phone: (503) 373-8000
Address: 400 High Street SE
P.O. Box 53505
Salem, OR   97312-1000

Pennsylvania State Workers Insurance Fund
Phone: (570) 963-4635
Address: 100 Lackawanna Avenue
P.O. Box 5100
Scranton, PA   18505-5100

Beacon Mutual Insurance Company
Phone: (401) 825-2667
Address: One Beacon Centre
P.O. Box 5100
Warwick, RI   02886-1378

South Carolina State Accident Fund
Phone: (803) 896-5800
Address: P.O. Box 102100
P.O. Box 5100
Columbia, SC   29221-5000

Texas Mutual Insurance Company
Phone: (800) 859-5995
Address: 6210 East Highway 290
P.O. Box 5100
Austin, TX   78723-1098

Workers Compensation Fund
Phone: (800) 446-2667
Address: 100 West Towne Ridge Parkway
P.O. Box 2227
Sandy, UT   84070

Washington Department of Labor and Industries
Phone: (360) 902-5800
Address: P.O. Box 44001
P.O. Box 2227
Olympia, WA   98504-4001

Wyoming Division of Workers Safety & Compensation
Phone: (307) 777-7159
Address: Cheyenne Business Center
1510 East Pershing Boulevard
Cheyenne, WY   82002

Workers Compensation Board - Alberta
Phone: (780) 498-3999
Address: 9925-107 Street
P.O. Box 2415
Edmonton, AB   T5J 2S5

Workers Compensation Board of British Columbia (WORKSAFEBC)
Phone: (604) 273-2266
Address: P.O. Box 5350 Station Terminal
P.O. Box 2415
Vancouver, BC   V6B 5L5

Manitoba Workers Compensation Board
Phone: (204) 954-4321
Address: 333 Broadway
P.O. Box 2415
Winnipeg, MB   R3C 4W3

Phone: (506) 632-2200
Address: 1 Portland Street
P.O. Box 160
Saint John, NB   E2L 3X9

Workers Compensation Board of Nova Scotia
Phone: (902) 491-8999
Address: 5668 South Street
P.O. Box 1150
Halifax, NS   B3J 2Y2

Prince Edward Island Workers Compensation Board
Phone: (902) 368-5680
Address: 14 Weymouth Street
P.O. Box 1150
Charlottetown, PE   C1A 7L7

Saskatchewan Workers Compensation Board
Phone: (306) 787-4370
Address: 200 - 1881 Scarth Street
P.O. Box 1150
Regina, SK   S4P 4L1

Puerto Rico State Insurance Fund Corporation
Phone: (787) 793-5959
Address: G.P.O. Box 365028
P.O. Box 1150
San Juan, PR   00936-5028
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AASCIF Newsletter

Looking Outside the Index for Structured Finance Investment Opportunities

By Thomas Sweeney, Portfolio Manager and Sector Head-Structured Finance, DWS, and Lloyd Ayer, Client Solutions–Insurance, DWS

*DWS was the sponsor of the Finance and Investment Track at the 2018 AASCIF Annual Conference.

Insurers are well versed in the fixed income market and are typically quite familiar with its vast size. But in such a large and diverse market, some segments can get lost in the shuffle. We believe this is especially the case for the Structured Finance world, partially thanks to its relatively small allocation in aggregate benchmarks, reflecting a less than 5 percent allocation in the more widely recognized fixed income indices, such as the Bloomberg Barclays Aggregate Index.

This paltry allocation may make some investors think that Structured Finance is a tiny part of the fixed income pie, but that isn’t the case. Instead, nearly $600 billion was issued in the Structured Finance market last year (see issuance illustration), and it remains a vital source of funding for a wide range of companies. (1)

But while the issuance might be over half a trillion dollars for the Structured Finance market, approximately $120 billion made its way in reported indices, including the Bloomberg Barclays Aggregate Index. This leaves a sizable gap between benchmark representation and what was available in the market. (1)

This representation gap is due to a variety of Structured Finance products being excluded from traditional indexes. The reasons for the exclusions vary by index but are usually focused on coupon type, private securitizations, and underlying securities asset. The combined impact is clear though, as less than 10 percent of investable assets from the structured finance market found their way into aggregate benchmarks.

However, this lack of index representation and the overlooked nature of the market could present investors with an investment that may complement their existing portfolios. With so many avoiding or glossing over the Structured Finance market, they may present an additional investment option for a diversified portfolio. That is, of course, if investors know where to look.

Where to Look in Structured Finance

With only 10 percent making it into broad benchmarks, significant opportunities may exist in the Structured Finance market that could be flying under the radar. One in particular that is worth highlighting at the current juncture is Collateralized Loan Obligations (CLOs), a segment that made up nearly 20 percent of Structured Finance issuance in 2017 but was virtually nonexistent in aggregate fixed income benchmarks, as shown below.

(1) Estimates based on DWS comparison of 2017 issuance and Bloomberg Barclays Aggregate holdings as of March 31, 2018

Source: DWS, Bloomberg, Barclays Capital Indices, Wells Fargo, as of March 29, 2018.

There are a few reasons why these actively managed pools of leveraged loans could be intriguing complements to traditional fixed income portfolios. Not only does the sector have low correlations to other sectors of fixed income—based on analysis we conducted looking at correlations on total returns dating back to the start of the JPM CLO index in 2012 versus major fixed-income asset classes—but the Structured Finance exclusion from traditional benchmarks may provide managers possessing strong research capabilities with a chance to add value by selecting securities that may be poised to outperform traditional fixed-income sectors.

Diversification is also a key feature of CLOs, which may help in potentially reducing overall portfolio risk.  In a typical structure, no single obligor makes up more than 2.5 percent of a given CLO either, so risks are well diversified from a company-specific level. Using Bloomberg information and based on our analysis of deals coming to market this this year, on average, more than 80 issuers are represented in a typical CLO with industry diversification principles taken into account as well, spreading out the portfolio’s risk profile.


Beyond the diversification of CLOs, investors should also consider the yield perspective. CLOs are generally tied to LIBOR and are typically less sensitive to interest rate risks because they are floating rate structures, at least when compared to traditional long-duration fixed income securities.

Consider a representative CLO capital stack below. An average CLO (as of early second quarter 2018) may be heavily weighted to AAA-rated debt, which may target a yield of 100 basis points above LIBOR. However, it will also include lower-rated securities which, although in a less favorable credit position, help to boost yields. As the illustration shows, BBB-rated debt may offer up yields of 275 basis points above LIBOR, and although there is no guarantee these targets will be achieved, such returns can provide a nice income boost for investors without materially changing the overall risk level in the portfolio.

[NOTE: TO BE ADDED TO DISCLOSURE ABOVE.] No assurance can be made that projected results will be achieved or that similar characteristics will be available in the future.

By spreading out the holdings while still being opportunistic when it comes to lower-rated securities, CLOs can offer the potential for higher yields without a proportionate increase in risk. This may potentially give CLOs an edge in terms of yield efficiency, at least when compared to other types of fixed-income instruments.

The Bottom Line

CLOs are having a renewed interest among insurance company portfolios, specifically among P&C insurers, as not only part of core/core+ strategies but also as a satellite allocation through a separate account. Their RBC capital charge can make them capital efficient while providing the potential for a higher income opportunity without taking on significant duration and default risk. This could be particularly important in an extreme rising rate environment; having exposure to a floating rate instrument may help preserve principal without sacrificing too much in terms of income.

CLOs, however, have grown in the past few years, which has led to some deterioration of investor protections.  Along those lines, with some underlying loans taking on more leverage, with fewer protections than in previous cycles, CLOs could experience higher losses in a future downturn. Furthermore, the asset class can be fairly illiquid with larger trading costs relative to other similarly rated securities products.

With that said, CLOs have also shown to be a strong diversifying asset within a core investment grade portfolio, given low correlations to other fixed income sectors. The combination of favorable yields, high liquidity, and the ability to preserve surplus in rising rate environments can make them a suitable option.



No assurance can be made that an investment in CLOs will meet its stated objective. Diversification neither assures a profit nor guarantees against a loss. Past performance is not an indicator of future results.

DWS and the Medical Professional Liability Association are not affiliated.

Investments are subject to investment risk, including market fluctuations, regulatory change, possible delays in repayment, and loss of income and principal invested. The value of investments can fall as well as rise, and you might not get back the amount originally invested at any point in time.

Fixed Income – The value of the fixed-income instruments will fluctuate and may lose value, as bond values decline as interest rates rise. Certain bonds and fixed income instruments may be callable. If called, the investor will experience a shorter maturity than anticipated. Bonds are exposed to credit risk (or the risk that the bond will be downgraded) and inflation risk (or the risk that the rate of the bond’s yield will not provide a positive return over the rate of inflation). Investing in high-yield bonds, which tend to be more volatile than investment-grade fixed income securities, is speculative. These bonds are affected by interest rate changes and the creditworthiness of the issuers, and investing in high-yield bonds poses additional credit risk as well as greater risk of default.

This document has been prepared without consideration of the investment needs, objectives, or financial circumstances of any investor. Before making an investment decision, investors need to consider, with or without the assistance of an investment adviser, whether the investments and strategies described or provided by DWS, are appropriate, in light of their particular investment needs, objectives, and financial circumstances. Furthermore, this document is for information/discussion purposes only and does not constitute an offer, recommendation, or solicitation to conclude a transaction and should not be treated as giving investment advice.

The comments, opinions, and estimates contained herein are based on or derived from publicly available information from sources that we believe to be reliable. We do not guarantee their accuracy. This material is for informational purposes only and sets forth our views as of this date. Past performance or any prediction or forecast is not indicative of future results. Investments are subject to risks, including possible loss of principal amount invested.

DWS does not give tax or legal advice. Investors should seek advice from their own tax experts and lawyers, in considering investments and strategies suggested by DWS. Investments with DWS are not guaranteed, unless specified.

Although information in this document has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness, or fairness, and it should not be relied upon as such. All opinions and estimates herein, including forecast returns, reflect our judgment on the date of this report, are subject to change without notice, and involve a number of assumptions which may not prove valid.

Investing in financial markets involves a substantial degree of risk. There can be no assurance that investment ideas will achieve positive results. Investment losses may occur, and investors could lose some or all of their investment. No guarantee or representation is made that an investment idea, including, without limitation, the investment objective, diversification strategy, or risk monitoring goal, will be successful, and investment results may vary substantially over time. Investment losses may occur from time to time. Nothing herein is intended to imply that an investment may be considered "conservative," "safe," "risk free," or "risk averse." Economic, market, and other conditions could also cause investments to alter their investment objectives, guidelines, and restrictions.

This publication contains forward-looking statements. Forward looking statements include, but are not limited to, assumptions, estimates, projections, opinions, models, and hypothetical performance analysis. The forward-looking statements expressed constitute the author’s judgment as of the date of this material. Forward-looking statements involve significant elements of subjective judgments and analyses and changes thereto and/or consideration of different or additional factors could have a material impact on the results indicated. Therefore, actual results may vary, perhaps materially, from the results contained herein. No representation or warranty is made by DWS as to the reasonableness or completeness of such forward-looking statements or to any other financial information contained herein.

The terms of any investment will be exclusively subject to the detailed provisions, including risk considerations, contained in the Investment Management Agreement. When making an investment decision, you should rely on the final documentation relating to the transaction and not the summary contained herein.

This document may not be reproduced or circulated without our written authority. The manner of circulation and distribution of this document may be restricted by law or regulation in certain countries, including the United States. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction, including the United States, where such distribution, publication, availability, or use would be contrary to law or regulation or would subject DWS to any registration or licensing requirement within such jurisdiction not currently met within such jurisdiction. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions.

For purposes of ERISA and the Department of Labor's fiduciary rule, we are relying on the sophisticated fiduciary exception in marketing our services and products, and nothing herein is intended as fiduciary or impartial investment advice unless it is provided under an existing mandate.

The brand DWS represents DWS Group GmbH & Co. KGaA and any of its subsidiaries, such as DWS Distributors, Inc., which offers investment products, or Deutsche Investment Management Americas Inc. and RREEF America L.L.C., which offer advisory services.


© 2018 DWS Group GmbH & Co. KGaA. All rights reserved. I-059369-1



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