Here’s How a Crash Could Pound Some U.S. Life Insurers: Moody’s
October 8, 2019 by Allison Bell
Many U.S. life insurers are coping with low interest rates by investing in more lower-rated, higher-paying bonds and notes, and that strategy could backfire if the economy tanks, according to a new analysis from Moody’s Investors Service.
Moody’s rating analysts came up with their own, rough, life insurer shock test by seeing what might happen to the insurers’ bond portfolios, and risk-based capital (RBC) levels, if bonds performed as poorly as they did during the 2001-2002 downturn.
In 2001-2002 Repeat scenario, the median issuer’s RBC rating would fall about 15%, the analysts estimate.
That means half of the issuers would face declines less than or equal to 15%, and half would face declines of at least 15%.