Life insurance companies are continuing to undertake “redundant” reserve financings and are now mainly using domestic captive subsidiaries/affiliates, said A.M. Best in a report.
In the rating firm’s wrap-up of the US life and annuity sector, it stated that life insurance companies were increasingly using domestic captive affiliates to maximise capital efficiency, “which has become more important in the current low interest rate environment.”
Despite concerns with certain macroeconomic factors, especially the low interest rate environment, A.M. Best indicated that its rating outlook for the US life and annuity sector remains stable.
The stable rating outlook reflects generally strong risk-adjusted capital positions, favorable GAAP and statutory operating earnings and continued efforts at improving balance sheet fundamentals through enhanced risk management and continued de-risking initiatives.
Additionally, A.M. Best notes that life insurers’ investment portfolios have held up well, with most insurers reporting relatively modest investment impairments in 2012 and relatively large unrealized gain positions in their fixed income portfolios.
As experienced during the financial crisis, asset portfolio valuations can swing wildly in times of systemic market distress. A.M. Best has observed that selected organisations have refined their investment allocations to help offset the impact of low new money rates.
However, for the most part, A.M. Best has not witnessed wholesale changes in investment strategies to enhance yield. Rather, for the most part, companies are making modifications around the edges.
