US life insurer investment portfolio liquidity to offset falling IMR balances

Written by Adam Cadle

29/09/2023

US life insurer investment portfolio liquidity is to offset falling investment maintenance reserve (IMR) balances, according to Fitch Ratings.

Amid persistently low rates, the industry’s total IMR reserve reached a peak of ~$39bn at Q4 2021. As of Q2 2023, it has plummeted 59% since then, amid Fed tightening, asset repositioning and widening spreads. Realised losses transferred to IMR in 2022 totalled $17.3bn, with reserve balances down $6.3bn YTD through Q2 2023 to $16bn.

“Favourably for the industry, the NAIC recently adopted guidance allowing for the statutory admittance of net negative IMR balances,” Fitch Ratings said.

“This could increase total adjusted capital, as qualifying insurers would be allowed to admit net negative IMR up to 10% of adjusted capital and surplus. Insurers with risk-based capital (RBC) ratios over 300% (after excluding positive goodwill, electronic data equipment, operating system software, deferred tax assets and admitted IMR) can utilise limited admittance of net negative IMR.”

Fitch added that the negative effects on statutory capital and cashflows will be mitigated by investment portfolio liquidity.

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