Investment risk remains a key credit risk for US life insurers owing to their high exposure to fixed income securities, in particular corporate bonds, Moody’s Investors Service has said.
Key corporate sectors such as airlines cruises, hospitality, retail and oil have endured a wave of ratings downgrades since the beginning of the pandemic. Moody’s said although risk is less elevated than several months ago, any future rating actions to those sectors could weaken US life insurers’ asset quality.
Over a longer term, the persistence of ultra-low interest rates remains the most material risk facing the sector.
“While low interest rates will not RBC ratios immediately, it will impact capital over time,” Moody’s said.
Additionally, exposure to variable annuities or long-term care legacy blocks is a risk for some companies, in part because of interest rate pressure. For low interest rates, the effect of mispriced legacy blocks will not typically hit RBC ratios immediately but will affect insurers' capital over time.
"Despite the significantly adverse nature of our test, our rated universe of life insurers performs well with an aggregate post-stress RBC above 350%, and nearly all above 250%," Moody's Vice President Michael Fruchter said.
