Accounting rules played a major role in determining which carriers dropped interest-sensitive life and health insurance products when the Federal Reserve Board started pushing rates lower in an effort to prop up the banking system.
Donald Chu and Michael Gross at Standard & Poor's Ratings Services make that observation in a commentary published in a collection of mid-year assessments of the insurance ratings outlook.
In a review of frequently asked questions about U.S. life insurers, the analysts referred directly to long-term care insurance (LTCI) in a list of products susceptible to low rates.
Long-term disability (LTD) insurance writers have noted that their products are also suspectible to lower rates.
"The first companies to retract from these lines of business have been foreign providers that reported under a fair-value accounting construct, as they felt the impact of declining long-term interest rates much quicker than their U.S. peers," the analysts said.
U.S. accounting rules have let insurers wait to reflect the effects of low rates on the value of the assets they hold and the benefits promises they have made.
In another commentary, on health insurers preparing for the effects of implementation of major Patient Protection and Affordable Care Act (PPACA) provisions in 2014, Joseph Marinucci and other S&P analysts noted that most U.S. health insurers have ratings at the A or BBB level, with some with ratings below BBB and just two with AA ratings.
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