Ever thought of opening your own escape room or theme park?

Or maybe you’re thinking of contacting SpaceX to launch a satellite of your own?

It could be that you simply have a piece of art or expensive jewelry at home.

What if you’re trying to make it as an influencer where your online reputation is your most important asset?

To address all the above, and more, there is a niche segment within insurance called “specialty insurance.” As the name would suggest, specialty insurers attempt to cover risks that are too unusual, complex or volatile for standard insurers to price correctly. Examples of specialty insurance coverage include:

• cyber insurance,
• marine, aviation and energy risks,
• kidnap and ransom,
• directors’ and officers’ (D&O) risk, and
• niche businesses or properties.

Standard versus specialty insurance: What’s the difference?

The line between standard and specialty insurance is not always straightforward. A small office building in the suburbs is more standard while a chemical manufacturing facility of the same size would fall well under specialty. The more unusual the asset, the environment and potential loss, the more likely you are to use a specialty underwriter.

The most significant difference from standard insurers is that specialty insurers do not rely on scale and mass data the to underwrite risk, but instead use specialized knowledge and models to support their underwriter’s judgement. Often, specialist underwriters grow a very specific set of knowledge around their segment: engineering intricacies, political risk, weather models, etc. The policies themselves are much less standardized, with more levers around maximum paid, duration, repricing, conditions to be met or excluded events.

The benefits of investing in specialty insurers can be significant.

What makes specialty special?

The building of detailed knowledge in niche areas is its own self-reinforcing moat. An insurer that has been covering political risk for decades will have more claims data, stronger broker relationships and increasingly better understanding of the risks to avoid. Because these risks are harder to assess, pricing is generally less commoditized. As such, customer retention rates and margins tend to be higher.

Specialty insurers also have more flexibility to respond to changing environments. They can reduce the amount of coverage offered, increase deductibles, add exclusion clauses or just reduce their overall exposure.

A good example is the beginning of the conflict with Iran, when insurance contracts on ships were repriced every 72 hours for the first few weeks, with the ship/cargo coverage going from roughly 0.25% of the ship’s value to several percentage points more. In some cases, quotes were increasing by more than tenfold.

Lloyd’s of London, the world’s largest marketplace for specialty insurance, wrote over GBP57.9 billon of gross premiums in 2025 and reported a combined ratio of 87.6% (implying an operating margin of 12.4%). Combined with investment incomes, it generated a return on capital of 22%. This level of profitability also points to competition flowing in with new money, leading pricing to degrade by 3.7% as insurers compete for growth. Price weakness was especially elevated in corporate property and global reinsurance, with the latter seeing unprecedented influx of new alternative capital. Life and middle-market insurance are still seeing a hard market (a positive pricing environment).

This is typical of the ebb and flow of the insurance cycle. Strong profit attracts new capital, which creates more competition and pushes prices down. Returns eventually deteriorate or a major loss removes capital from the market, leading pricing to improve again. With a highly diversified specialty insurance market, different segments will be at different points in the cycle at different times. The best insurers are not those that grow the fastest; they are the ones that are willing to shrink their exposures to segments where pricing doesn’t adequately compensate for the risk taken, while identifying when to get back in for the right price. Seems a bit like equity investing.

What else differentiates specialty insurers? One thing is that in some segments, claims can take years to emerge, particularly in casualty, professional liability and D&O insurance. This can lead to current profits and underwriting quality looking good at the expense of future profitability. As such, firms need to strike a fine balance between maintaining enough insurance reserves for future claims, while also not over-penalizing short-term profit.

How do we have exposure?

One of the specialty insurers we own is Hiscox Ltd. (HSX LN), a Bermuda-based Lloyd’s insurer with a strong retail specialty presence. The company operates in three segments:

• Retail: specialty products to individuals and small businesses in the UK, Europe and the United States.
• London market: underwrites complex risk through the Lloyd’s market, with a strong focus on marine, energy, aviation, terrorism and political risk.
• Reinsurance: reinsurance for other insurers and insurance-linked capital supplied by outside investors.

In 2025, Hiscox wrote around $5.0 billion of contracts and has a reputation of excellent underwriting culture along with a best-in-class brand in the insurance world and among high-net-worth individuals.

Another name we own is US-based RLI Corp. (RLI US). It operates through a decentralized underwriting model and is a consistent top performer within the industry given its conservative underwriting and reserving. RLI focuses on the segments of niche properties, casualty and surety markets.

RLI has produced an underwriting profit for 30 consecutive years and increased its dividend for 50 consecutive years, an anomaly within the industry.

The specialty space is getting smaller

Within the sector, one of the big topics recently has been M&A. Twenty years ago, there were more than ten publicly listed Lloyd’s of London specialty insurers. Now only three remain, with the largest one – Beazley – in the process of being acquired by Zurich Insurance.

Given the attractive characteristics described above, it is easy to see why the large composite insurers would want to gain exposure to specialty insurers. Large composite insurers have significant capital to deploy and global distribution relationships, but lack the underwriting culture and specialist data required to enter these niche markets organically. Similarly for investors, specialty insurers can be compelling investments when they have the discipline to avoid bad risks and the expertise to price difficult risks better than competitors.

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Official M2 rose by an annualised 7.3% between December and June, the strongest six-month increase since March 2022. The broader M2+ measure calculated here – which additionally includes large time deposits and institutional money funds – expanded by 8.5% over the same period. Growth of narrow money M1A (currency plus demand deposits) was faster still, at 10.6% – see chart 1.

Chart 1

Money growth is reflected in some combination of real GDP expansion, inflation and falling velocity. Even optimists would doubt that current potential GDP growth is more than 3% pa. Broad money expansion of more than 8%, therefore, requires a contraction in velocity of at least 3% pa to be consistent with 2% inflation. Such a decline is implausible on a trend basis: M2+ velocity fell by an average 0.8% pa over 1960-2025.

US monetary acceleration contrasts with weakness or slowdowns in other developed economies. Six-month broad money growth in June was 4.1% annualised in the Eurozone (non-financial M3), 2.9% in the UK (non-financial M4) and 1.3% in Japan (M3) – chart 2.

Chart 2

Six-month real narrow money momentum remains negative in the Eurozone, UK and Japan even as US growth moves above a 2024 high – chart 3.

Chart 3

The scale of the monetary divergence goes beyond signalling a stronger case for US policy tightening, suggesting that other central banks should be moving in the opposite direction to the Fed.

What explains US acceleration? Unlike other central banks, the Fed has never published a “counterparts” analysis of broad money. However, the key drivers are likely to have been stronger bank lending – commercial bank loans and leases grew by 8.2% annualised in the six months to June, up from 6.3% in the prior half-year – and the Fed’s resumption of QE (“reserve management purchases”) from December. External flows may also have contributed, reflecting strong foreign buying of US equities.

“Monetary financing” is a broader concept than QE, encompassing purchases of Treasury bills and notes by commercial banks and money funds as well as QE and changes in the Treasury’s balance at the Fed. The level of money growth in the US continues to be inflated relative to other developed economies by monetary financing of a much larger fiscal deficit – chart 4.

Chart 4

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The PMI rebound may reflect a boost to sentiment from a May / June fall in energy prices, which has since reversed – see chart 1.

Chart 1

Money trends were soft even before June’s rate hike. The preferred broad measure here – non-financial M3, comprising holdings of households and non-financial corporations (NFCs) – rose by an annualised 4.1% in the six months to June, below a pre-pandemic (i.e. 2015-19) average of 4.9%. Narrow money developments are more worrying, with six-month growth of non-financial M1 falling to 2.5% last month, having peaked at 5.2% in September 2025 – chart 2.

Chart 2

The sector breakdown shows similar weakness in household and NFC M1 components. Meanwhile, six-month real narrow money momentum, which led the PMI recovery over 2023-25, turned negative in April, remaining so in May-June – chart 3.

Chart 3

Optimists cite respectable bank loan growth, of 4.6% annualised in the latest six months. Statistical studies, however, have long shown that lending is a coincident or lagging economic indicator, whereas money leads. Six-month loan growth may have peaked at 4.9% in March. The latest ECB quarterly bank lending survey, while less downbeat that the previous poll conducted at the height of Gulf hostilities, suggests a slowdown – chart 4.

Chart 4

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None of us is naturally comfortable with uncertainty. We prefer some sense of direction, such as a set of expectations or map that helps us understand what may lie ahead and how we might respond. Think about ordering an Uber. We choose the type of vehicle we want, see an estimated arrival time and then watch the driver’s route unfold on a map. The map does not make the car arrive any faster but reduces the anxiety of the uncertainty of when the driver may arrive.

Investing, unfortunately, does not come with the same kind of map. Financial markets are complex, constantly changing and shaped by forces that cannot be predicted with certainty. But successful investing is not about eliminating uncertainty. Instead, it is about navigating uncertainty through thoughtful decisions in spite of it. This article explores a set of decision-making principles designed to help investors navigate uncertainty with greater discipline, confidence and perspective.

Decision-making principles

Decision-making is often viewed as choosing between alternatives, but the real value lies in the process that precedes the choice. Effective decision-making requires clarity about objectives, an understanding of the available options and a careful assessment of the potential consequences. It is less about finding the “right” answer and more about making choices that can withstand changing circumstances. A robust process helps distinguish between actions that are merely appealing today and those that remain resilient over time.

In investing, uncertainty is unavoidable. Success does not come from predicting the future with precision, but from making decisions that can perform across a range of outcomes. By applying disciplined principles around forecasting, risk-taking, diversification, behavioural awareness and managing groupthink, investors can build portfolios and decision frameworks that are better equipped to navigate whatever the future may bring. Uncertainty never disappears, but a strong decision-making process can transform the unknown from a possible threat into something that can be managed.

Principle 1 – Understand the role of predictions

Every investment decision is a prediction. Whether we realize it or not, allocating capital reflects a view about how the future may unfold. The challenge is that the future is unknowable. That is why the goal of prediction is not accuracy for its own sake, but better decision-making. Predictions help investors assess possibilities, weigh probabilities and make more informed choices in an uncertain world.

The key is recognizing that investing is a game of probabilities, not certainties. Rather than asking “What will happen?”, investors should ask “What could happen, and how should I prepare for it?” That shift in mindset can lead to more resilient portfolios and better long-term outcomes.

Principle 2 – Take risks deliberately

The most successful investors understand that uncertainty is a permanent feature of markets and that avoiding risk altogether is often the greatest risk of all. Instead, they take risks deliberately, focusing on opportunities where the potential reward justifies the uncertainty and constructing portfolios that can withstand a range of outcomes. Predictions play a vital role, not because they reveal the future, but because they help investors evaluate probability, challenge consensus views and identify where expectations may be misplaced. Risk management then takes over, ensuring the portfolio remains robust even when those predictions prove wrong. The combination of the two creates a powerful framework for navigating uncertainty. Think of it as prediction being about reducing uncertainty, while risk management is about succeeding despite it.

Principle 3 – Diversification needs to work harder

Diversification matters, but it cannot be set and forgotten. The recent period of rising inflation and bond yields was a reminder that equities and bonds can fall together, and that bonds may protect if growth weakens, but not if inflation expectations rise. Many investors have moved beyond equities and bonds introducing a component of alternative investments, but these are not without their own challenges in times of stress. The point is not to own a bit of everything; instead, the decision should be to know why you own each exposure, what returns it delivers or what risk it mitigates and whether you are still being rewarded to invest in it.

Principle 4 – Understand the impact of emotional influence

Investors spend considerable time trying to understand markets, economies and companies. Yet some of the most important drivers of investment outcomes come from within. Fear can magnify risks. Optimism can overlook them. Confidence can create conviction, but it can also create complacency. Understanding these emotional forces is a critical part of successful decision-making.

The objective is not to remove emotion from investing, but to recognize its influence. Investors who develop emotional awareness and discipline are often better positioned to make consistent decisions, remain committed to long-term objectives and navigate uncertainty without being driven by it. This is where emotional intelligence can contribute to more successful investment outcomes.

Principle 5 – Beware of groupthink and overconfidence

The quality of a committee’s decisions is often determined not by how quickly it reaches agreement, but by how effectively it challenges its own assumptions. Groupthink and overconfidence can emerge when optimism goes untested. Mental contrasting provides a practical antidote. By asking committee members to envision both the most desirable realistic outcome and the obstacles that could derail it, the conversation shifts from confirmation to exploration. This approach not only improves the quality of decisions but also encourages constructive dissent, strengthens governance and fosters a culture where challenging ideas are viewed as a contribution rather than criticism.

Principle 6 – Appreciate the benefit of adaptability

In practice, adaptability can take many forms: reassessing capital market assumptions, refining portfolio positioning, revisiting liquidity needs or updating governance processes as conditions evolve. Adaptability is often the bridge between a sound strategy and successful outcomes. While no investor can foresee every economic shift or market disruption, those who remain flexible in their thinking and disciplined in their decision-making are better equipped to respond to changing conditions. In an uncertain world, the ability to adapt may be just as valuable as the ability to forecast.

Navigating uncertainty

The future will always be uncertain. Success belongs not to those who predict it most accurately, but to those who are best prepared for the many ways it may unfold. Uncertainty is not a temporary condition that investors must endure until markets become clearer. It is a permanent feature of investing. The challenge is not to eliminate uncertainty but to make sound decisions despite it.

While forecasts, models and analysis can improve our understanding of what may lie ahead, they cannot provide certainty about the future. The most successful investors recognize that investment success comes from building robust decision-making processes that acknowledge uncertainty, evaluate probabilities and remain adaptable as the latest information emerges. This requires taking risks deliberately, diversifying with purpose, challenging assumptions, encouraging constructive debate and maintaining the discipline to adjust when the facts change.

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Artificial intelligence (AI) is often discussed as a technology challenge, but its successful adoption is fundamentally a leadership and business transformation challenge.

In this recent Human Resources Director article, Ankur Saxena, Director, Technology Strategy, and Diana Bartolic, Head of Human Resources, share their perspectives on why AI enablement requires more than new tools and technology. It requires dedicated leadership, effective governance, thoughtful change management and a focus on helping people adapt as roles and ways of working evolve.

As Ankur notes, AI is “largely a business change impact initiative and less of a technology initiative.” Diana highlights the importance of supporting employees through a period of significant workplace transformation and ensuring organizations have the right structures in place to navigate change responsibly.

At CC&L Financial Group, we believe creating long-term value from AI means investing not only in technology, but also in the people, processes and leadership needed to make adoption effective, responsible and aligned with business objectives.

Read the full article: AI enablement officer: the new sheriff in transformation town

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Investor views on China have become increasingly polarized, creating both challenges and opportunities for active managers. While concerns about economic growth, geopolitical tensions and market regulation continue to shape sentiment, China’s scale and importance within the emerging markets universe make it difficult for investors to ignore.

In a recent interview with Benefits and Pensions Monitor, Michael Mortimore discusses the factors influencing China’s investment outlook and why a selective, fundamentals-driven approach remains essential in today’s environment. He explores the structural challenges facing the Chinese economy, the implications for investors and the developments that could help support a more sustainable path forward.

As Michael explains, “If China was able to reinvigorate domestic demand and also curb the incentives that basically fuel all this excess capacity, we think that that would be a really, really positive development and really bullish for long term prospects for China as a whole and the sustainability of its economic model.”

Read the full article for Michael’s perspective on navigating uncertainty, evaluating risk and identifying long-term opportunities in one of the world’s most consequential investment markets: Is China still worth the risk for emerging market investors?

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The Fed’s latest semi-annual Monetary Policy Report to Congress contains a paragraph discussing recent trends in the M2 money measure, included, apparently, at the behest of Chair Warsh.

In follow-up Q&A, Chair Warsh explained that he is not a “monetarist” but nevertheless holds the “old-fashioned view that monetary policy has something to do with money”.

Meanwhile, perhaps not coincidentally, former Fed Governor Miran has co-authored a paper that attempts to rehabilitate the P* monetarist approach to inflation forecasting.

P* is the level of prices implied by the current money stock, incorporating assumptions about trend GDP and velocity. The gap between P* and the prevailing price level P is a measure of future inflationary (or disinflationary) pressure. Miran et al present estimates of the price gap based on M2 and other (Divisia) money measures, showing that these gaps exhibit a statistically significant relationship with future inflation.

Both the Fed report and the Miran paper suggest that current monetary trends are non-inflationary. The former notes that annual M2 growth averaged 4.7% in the first five months of the year, which is “closer to the range typically observed in the 2010s”, when inflation undershot the 2% target.

Similarly, the current price gap estimates presented by Miran et al are all around zero, implying that “the stance of monetary policy is quite close to neutral right now, putting neither upward nor downward pressure on the inflation rate”.

A cynic might wonder if the appearance of these references to monetary trends has been motivated by a search for arguments to push back against a strengthening case for policy tightening based on conventional economic data (reflected in the Fed policy direction model discussed in previous posts).

In any case, the assessment that current trends are unthreatening may soon be out-of-date. Year-to-date annual M2 growth of 4.7% conceals a pick-up in six-month expansion to a 7.1% annualised pace in May. The broader M2+ measure calculated here rose by 8.2% over the same period – see chart 1.

Chart 1

The recent acceleration suggests that the Miran et al price gap estimates are now positive.

By contrast, six-month growth of the Bank of England’s M4ex broad money aggregate was 4.4% annualised in May, with the non-financial M4 measure preferred here rising by just 2.8%.

The Bank’s quarterly Monetary Policy Report (or Inflation Report before November 2019) contained no mention of money between May 2019 and May 2023, a period during which annual non-financial M4 growth reached 16.0%. A reappearance in August 2023 coincided with the annual rate of change turning negative. Editions in May 2024 and May 2025 included boxes discussing broad money developments in detail.

Still, there is no evidence from the minutes that monetary considerations have played a role in any decisions of any MPC member. Regular references to money trends are, it appears, little more than a box-ticking exercise. The same will likely be true at the Fed.

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Peter Muldowney co-authored a practical guide to enterprise risk management for boards overseeing pension and benefits programs, published in Plans & Trusts. The article outlines actionable steps to identify, assess and respond to risk while protecting plan reputation, resilience, and long-term value.

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Is China still worth the risk for emerging market investors?

In a recent interview with Benefits and Pensions Monitor, Michael Mortimore discusses how investors should think about China’s role within emerging market portfolios, the associated risks, and the importance of maintaining a disciplined investment approach.

Michael notes that that while China’s late-2024 stimulus triggered a brief rally in consumer stocks, the momentum faded fast and conviction that Beijing will stand behind household spending has eroded. Of this he says “Consumer demand and consumer sentiment looks incredibly weak and deflationary.”

 
Read the full article

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What is the Sustainable Finance Disclosure Regulation?

The Sustainable Finance Disclosure Regulation (SFDR) was introduced by the EU Commission as a core component of its 2018 Sustainable Finance Action Plan. As a key pillar of the EU Sustainable Finance agenda, SFDR aims to improve transparency, prevent greenwashing and help investors make informed sustainable investment decisions. To do so, the SFDR introduced mandatory disclosure requirements around environmental, social and governance (ESG) metrics at both the entity and the product levels.

An imperfect system

Since taking effect in March 2021, the SFDR has faced implementation challenges and criticism from market participants. In a 2023 consultation, the EU Commission found that 83% of respondents believed the regulation was being used as a product label and marketing tool, rather than solely as a disclosure framework. Respondents highlighted several concerns, including greenwashing risks linked to inconsistent product classifications, unclear definitions, limited ESG data availability and higher compliance costs. Together, these challenges have made implementation more difficult and limited SFDR’s ability to provide transparent, comparable information on sustainable investments.

This has prompted the EU Commission to consider revisions to the framework, culminating in the draft SFDR 2.0 proposal.

Is it the end of Article 8 and 9?

Not quite. Rather than eliminating these categories altogether, the proposal replaces the existing Article 6/8/9 disclosure framework with a revised product classification system that introduces clearer definitions, eligibility criteria and sustainability thresholds.

What might change?

Contribution requirement

• One of the most significant proposed changes is that at least 70% of a fund’s assets would need to satisfy the sustainability criteria of its chosen category, whereas the current SFDR provides managers with greater flexibility to determine the applicable threshold.

Transition (Article 7)

• This entirely new proposed category, Transition, is intended for funds investing in companies that are on a credible pathway towards improved sustainability performance.

ESG Basics (Article 8)

• To qualify under the category of ESG Basics, investments would generally need to satisfy at least one of several sustainability tests such as: outperforming the benchmark on ESG ratings or key sustainability indicators, demonstrating improved sustainability characteristics or meeting minimum sustainability standards. This marks a significant shift from the current framework, replacing the broad flexibility currently afforded to managers with more standardized qualification criteria.

Sustainable (Article 9)

• The Sustainable category remains the highest sustainability classification and is expected to be subject to the most stringent eligibility criteria. Although there is broad support for maintaining this as the highest sustainability category, negotiations continue around how sustainable investments should be defined in practice.

Mandatory exclusion criteria

• Under the current regulation, investing in an ESG or sustainable fund does not necessarily prevent exposure to controversial sectors, such as fossil fuels, tobacco or prohibited weapons. Under the proposed SFDR 2.0 framework, mandatory exclusion criteria would apply across all sustainability categories, with the scope and stringency of exclusions increasing for higher-ambition categories.

These proposed changes would work to ensure that a fund could substantiate its sustainability claim with clearly measurable criteria, assuaging greenwashing risks.

Where do negotiations stand?

The legislative process is progressing rapidly. The EU Council published its negotiating position in June, while the European Parliament is expected to adopt its position shortly. Once both institutions have finalized their positions, trilogue negotiations with the European Commission will begin alignment on the final SFDR 2.0 framework.

Implementation timeline

The trilogue negotiations are expected to begin this autumn. While the timing remains uncertain, the legislative process is likely to extend through 2027, followed by a transition period before the new rules apply. Based on the current timetable, SFDR 2.0 is unlikely to become applicable before 2029, although the exact implementation date will depend on the pace of negotiations and the final transition period.

What does this mean for investors?

While the final rules are still being negotiated, the overall direction is becoming increasingly clear: sustainability claims will need to be supported by more objective and measurable criteria. An analysis by Clarity AI estimates that around 40% of current Article 9 funds would not meet the proposed exclusion rules of the highest sustainability category. 80% of Article 8 funds would experience the same challenge.

For asset managers and investors, these reforms could materially affect how sustainable funds are designed, marketed and compared, making the final outcome particularly relevant for investment strategies with ESG objectives. Funds currently designated as sustainable under Article 8 or 9 may need to be strategically revisited with portfolio or policy adjustments if the intent is to maintain the same designation levels.

At Global Alpha, we are following these developments closely. While SFDR 2.0 remains subject to negotiation, the direction is clear: sustainability claims will increasingly need to be supported by objective, measurable criteria. We will continue to monitor the legislative process and its implications for the sustainable investment landscape as the final framework takes shape.

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