Volatility slowly gives way to recovery.

(From Insurance Day)

Byline: MADDI FORRESTER of Threadneedle looks at current market conditions and how they may affect the portfolio construction of insurance vehicles

AFTER the highs of the late 1990s, market conditions so far in the 21st century have been extremely volatile and investor confidence has been severely knocked. Signs of recovery are now beginning to show through in global markets, but future returns are generally viewed to be lower than those experienced in the past for some time to come. How then can insurers make the most of their investments?

When we talk about economic factors, we're generally talking growth, inflation, interest rates and currency rates. All these factors have an effect on asset classes and therefore returns on investments. Our current forecasts for each of these factors (and I have included bond yields in my assessment) are outlined below.

GROWTH

The US economy has rebounded strongly, thanks to the boost provided by the authorities' aggressive economic stimulus. This is having a positive effect globally.

In the euro area economy, production is strengthening. In 2003 this was mostly due to improved external demand but there is increasing evidence that …