New York Expands On Insurers Default Testing
New York state insurance regulators have given life insurers more instructions about how to incorporate worries about bond defaults into their annual reserve analyses.
The regulators warned in a November 2002 circular letter that a life insurer would have to do more than show it had enough reserves to cope with occasional bond defaults. But that letter gave only general guidelines, and many insurers had questions about how to implement it.
The regulators have followed up with a second letter giving a few more details.
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This year, for example, life insurers will have to test the corporate bonds and related investments in their portfolios using the assumption that, after defaults, the corporate bonds will yield only one percentage point more than comparable U.S. Treasuries.