U.S. life insurers face higher funding threat than insurance coverage threat through the COVID-19-related financial recession, in response to S&P International Scores analysts.
“U.S. life insurers’ funding portfolio has to this point been resilient to the pandemic and the financial recession. However the recession is not over but,” write the analysts led by Deep Banerjee.
At an trade degree, they count on “the sturdy degree of capitalization will offset some potential asset losses and proceed to help our present secure outlook on the U.S. life insurance coverage sector.”
S&P may take particular person score actions primarily based on its “view of adjustments to capitalization and potential funding losses on particular person portfolios.”
About 70% of the trade’s portfolio, or $3.1T, is invested in fixed-income securities; inside the FI portfolio, ~75% of bonds are in company and authorities securities, adopted by structured finance securities and a smaller quantity in bank loans, mutual funds, and exchange-traded funds.
Life insurers have elevated their holdings of BBB-rated bonds; with near 35% of their bonds rated in BBB right now vs. ~25% going into the final monetary disaster. Nonetheless, there is a “fallen angel” threat, the place investment-grade bonds are downgraded to junk standing.
The trade has near $750B of structured finance securities in funding portfolios; whole publicity, although, as a proportion of the general funding portfolio has declined to 24% from virtually 30% of the bonds held by these insurers being SF securities in 2008.
Says U.S. life insurers’ publicity to collateralized loan obligations is comparatively low, S&P says.
In CMBS, S&P sees insurers shifting investments extra towards multifamily and industrial properties in contrast with workplace house.
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