OLDWICK, N.J.—The U.S. life reinsurance segment is stable and reflects life reinsurers’ ability to effectively manage through the recent financial crisis, A.M. Best Co. Inc. says in a special report.
The report by Oldwick, N.J.-based Best, which is dated Nov. 23, states that while reinsurers “certainly were not insulated from the fallout of the economic downturn, direct writers generally were impacted more severely.”
“Direct writers maintain significant exposure to separate-account risks through variable product platforms,” according to the report. “U.S. life reinsurers deliberately have avoided underwriting these products because of their complexity, tail risk related to market exposure and pricing considerations, including the costs of hedging.”
Life reinsurers also are less dependent on investment income and achieving higher yields because they have less exposure to interest-sensitive lines of business, according to the report.
However, life reinsurers do “need to remain vigilant in their own capital management practices,” says the report. And their balance sheets do “reflect some impact from the credit-market contagion, including bond impairments, downward credit migration in fixed-income portfolios and pressures from the decline in the carrying value of derivatives.”
In addition, providing reinsurance collateral is integral to reinsurers’ business model, and access to cheap collateral such as letters of credit “has become a thing of the past,” the report says.
Copies of the report, “Life Reinsurers Avoid Worst Effects of Financial Market’s Meltdown" are available to nonsubscribers for $65 at /www3.ambest.com/bestweek.
For reprints of this story, please contact Lauren Melesio at 212-210-0707 or email lmelesio@crain.com
