Fitch: Capital Buffers May Protect Life Insurers

But Fitch believes “life insurers will be able to cope because, prior to the current rolling instability in worldwide financial markets, many life insurers had built up significant capital buffers, following a period of favorable investment market conditions,” the analysts said.

Reinsurers could be more vulnerable, because many of them depend on bank letters of credit, and many banks require reinsurers to post additional collateral when financial strength ratings fall below a specified level, the analysts write.

In addition, “some reinsurance contracts contain cancellation or recapture provisions also tied to ratings triggers that could cause the reinsurer to fund the return of a portion of premiums to the ceding company in unwinding a contract,” the analysts write.