Moody's: Life Insurers Are Prepared For Hard Times

Most of the world’s life insurers have enough cash and access to cash to cope with periods of severe financial stress, a rating agency says.

Analysts at Mood’s Investors Service, New York, has published that conclusion in a commentary that builds on an earlier effort to develop a U.S. liquidity model.

The new, global model can be applied to non-U.S. insurers as well as to U.S. insurers, the analysts write.

The new “global stress test” includes a measure of the risk that insurance operating company liabilities may “cost more than expected due to performance of secondary guarantees and/or elevated hedging costs,” Moody’s analysts write in the commentary.

The test also looks at the possibility that unexpected losses on high-qualify debt securities might hurt investment yields, and the possibility that liquidity stress might force an insurer to sell held-to-maturity investments at a loss.

The results of applying that test confirm the analysts’ view “that the liquidity of most life operating companies is sufficiently strong to weather a severe stress liquidity event,” the analysts conclude.

The analysts conducted the test by looking at how companies did during a 1-year period that started during the unpleasant days of late 2008.