US insurers report more than $200bn of unrealised losses in fixed income portfolios

Written by Adam Cadle

11/10/2022

US publicly traded insurers have reported more than $200bn of unrealised losses on their fixed income portfolios through Q2 2022, as rising interest rates have diminished bond values, according to AM Best.

AM Best stated that more than one quarter of publicly traded insurers have lost over 20% of their year-end 2021 shareholders’ equity due to rising interest rates pushing down the market values of current bond holdings. Life/annuity insurers, with their longer portfolio durations and the need to match with their lengthier duration liability profile, were more significantly impacted.

“With the Federal Reserve raising interest rates further in September 2022 and bond rates continuing to rise, unrealised losses are expected to grow further through the third quarter,” said Jason Hopper, associate director, industry research and analytics, at AM Best.

The unrealised losses of $203bn through the second quarter exceeds the losses suffered in the first quarter of 2020 at the start of the pandemic. For life/annuity insurers, 7% of their bond holdings will mature within the next year, while property/casualty and health insurers have nearly double the percentage of bonds maturing, at 15%.

“Bonds maturing in the near term will be a favourable development, as the proceeds from these bonds can be invested at a higher rate in the higher interest rate environment,” AM Best stated.

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