Page 30 - Continental Reinsurance 2022 Annual Report

28 2022 Investment Performance
Review and Report

The Emerging Markets and Developing Economies (EMDE) have been negatively impacted by monetary policy tightening in
advanced economies, a strong U.S. dollar, geopolitical tensions, and high inflation. These have dampened risk appetite and led to
widespread capital outflows and slowing bond issuance across EMDE.

EMDE growth is anticipated to remain essentially unchanged in 2023 relative to last year, as a pickup in China offsets a decline in
other EMDEs. Excluding China, EMDE growth is forecast to decelerate from 3.8 per cent in 2022 to 2.7 per cent in 2023 as
significantly weaker external demand is compounded by high inflation, tighter financial conditions, and other domestic
headwinds.

We expect the Central banks across our regions of operations to continue the tightening of monetary policy, be it at a slower pace
as inflation comes under control. This provides an opportunity in the fixed-income space as yields increase, the debt sustainability
issue is of great concern.

Our 2023 strategy will be focused on improving the quality of our investment assets while chasing returns. As we move to the
adoption of IFR9, Financial Instruments, we would use this as an opportunity to reclassify some of our held-to-maturity
instruments to allow us to downsize the emerging markets holdings and begin to participate in high-quality AAA-rated
instruments, particularly, the United States of America Treasury Bonds.

The following is the summary of our strategy for 2023.

Our investment income target for 2023 is N4.9 billion representing a 17.5% growth over the actual investment income of N4.19
billion in 2022.

The achievement of this target will connote that we must be more tactical in our investment management approach in 2023. The
income growth is based on the primary assumption of improved premium collections from profitable business, and efficient use of
assets to drive income, which will accrete our investment portfolio and mitigate losses that could come from issuer defaults.

Some of the initiatives will include:
• Aggressive premium collections to grow our portfolio and retention of investment income.
• Convert more local currencies to USD and invest in USD-denominated assets on a short to medium-term basis, especially in

the region where local currencies earn less than USD assets and high currencies' depreciations/devaluations.
• Rebalance the bond portfolio to include high-quality AAA-rated instruments. We continue to build a laddered portfolio of

bonds that will provide adequate liquidity to support our technical operation's obligations in addition to enhancing our
investment income.
• Diversify the bond portfolio by quality and geography
• Designate some of the Eurobond as available-for-sale instruments to take advantage of capital gains.
• Continue to manage our bank balances efficiently to drive returns.
• Move funds across the group to the regions where we can earn a superior return.
• Enhance market information intelligence by scanning the economies and tactically allocating assets for superior
performance.
• Consider cautious participation in the quoted equity market in value stocks and manage on a long-term basis for income
generation, while occasionally trading to take advantage of market movements. This will also include rebalancing the asset
class for optimum performance.