NU Online News Service, Nov. 20, 10:05 a.m. – U.S. life insurers may have a tough time buying financial reinsurance this quarter to beef up their statutory capital levels, according to a new report by Fitch Ratings, Chicago.
Financial reinsurance is a relatively new type of reinsurance that can improve insurers’ statutory capital levels by protecting them from swings in financial performance and other types of financial risk.
Total U.S. life insurance adjusted surplus fell 3.4% during the first half of the year, to $170 billion, as a result of investment losses, decreases in investment income, increases in claims reserves, and decreases in variable-annuity fees, Fitch says.
Normally, the drop in surplus would translate into an increase in financial reinsurance purchases, but “just how much of this increased demand will be met is uncertain given the limited number of players in the financial reinsurance market,” Fitch says.
Fitch predicts that the reinsurers still in the financial reinsurance market will require more collateral and higher prices.