Life Insurance Industry At Risk Of Sharply Rising Rates - IMF
- The life insurance industry is at risk if there is a sharp rise in bond yields, with an extreme situation potentially causing insurers to liquidate investments reaching $1 trillion in the United States and Europe, the International Monetary Fund warned on Tuesday.
- Vulnerabilities have increased for life insurers, the IMF said in its Global Financial Stability Report, noting the industry is at the "center of fixed income markets" owning about 20% of global bonds and 30% of credit investments. Life insurers have long-dated liabilities and are a critical source of demand for bonds with long maturities, wrote the IMF's Fabio Cortes and Deepali Gautam in the report.
- A stress scenario of a large and sudden increase in bond yields and corporate spreads could induce mark-to-market losses of 30 percent for insurers in some jurisdictions," the report said, pointing to US and UK insurers particularly sensitive.
- "This could lead to the emergence of policy surrenders, forcing life insurers to liquidate investments, which, in the extreme, could reach $1 trillion in the United States and Europe."