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October 17, 2003 at 08:00 PM
NU Online News Service, Oct. 17, 2003, 10:15 a.m. EDT – Options embedded in insurance contracts will make asset liability management more vital for companies and will make it more important for investors to understand how interest rates and product offerings affect risks, according to industry analysts.
Asset liability management is more important than ever, given that options within insurers’ product portfolios are among the biggest risks companies face today, says Michael Barry, managing director of Fitch Ratings, New York.
He made his remarks during a recent joint educational session sponsored by Fitch Ratings and Lehman Brothers, both of New York.
One way to understand a company’s risk is to understand the products that it offers and the options available within those products, said Julie Burke, a managing director in Fitch’s Chicago office. And the best way to do that is to review actuarial memorandums it files with state insurance departments.
But that resource is not readily available to many, Burke said, so it is disappointing that there is not more disclosure and not more information provided in 10Ks and 10Qs.
Another factor that should be considered is who sold the contract: a company producer or a wirehouse, she added. A contract sold through a wirehouse might be more susceptible to surrender, Burke said.
The current risk-based capital system is somewhat weak in measuring asset and liability management, Barry said.
