SVB collapse highlights critical lessons for insurance industry - AM Best

Written by Adam Cadle

15/03/2023

Despite US insurance companies’ minimal exposure to bonds issued by the now-shuttered Silicon Valley Bank (SVB), the failure highlights for insurers the importance of managing enterprise, asset-liability and liquidity risks, according to an AM Best commentary.

The Best’s Commentary, SVB Collapse Highlights Critical Lessons for the Insurance Industry, stated that just eight US insurers have bond exposures greater than 2% of their capital and surplus, with the maximum being less than 5%. The ramifications for equity portfolios could be more significant, according to the commentary, as some major bank stocks already have lost significant value. Five US insurers have equity exposures concentrated in the broader bank and trust sector greater than their capital, and 17 have exposures totaling at least half their capital.

“Many insurers depend on banks for operational aspects, but generally are not as vulnerable to bank run-on scenarios, although they can occur as we’ve seen in the past and emphasise the importance of a robust risk management structure, especially for annuity writers in a rising interest rate environment,” said Jason Hopper, associate director, industry research and analytics, AM Best.

“Insurers that conduct detailed analysis on the impact of rising interest rates on their asset-liability portfolios and manage their impacts through capital and other risk management tools will fare better in those events than those that are less well-managed.”

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