Insurance regulators are trying to figure out ways to take more types of risk into account when looking at insurance company investment portfolios.
An arm of the Invested Assets Working Group at the National Association of Insurance Commissioners, Kansas City, Mo.. – the Risk Other Than Credit Technical Subgroup – has posted two comments about the topic.
One comes from Matti Peltonen, a regulator in the New York State Insurance Department, and the other from Andrew Melnyk, managing director for research at the American Council of Life Insurers (ACLI), New York.
Peltonen says regulators do not have good tools to assess asset liquidity.
He has proposed creating a numeric liquidity index that would regulators to compare different companies and identify outliers. Indexers could assign each asset class a number rating from 1 to 10 to reflect how easy it ought to be to convert the security into cash, then calculate an insurer’s liquidity by weighing the insurer’s exposure to each asset class, Peltonen says.
“For example, real estate has shown a lot of price volatility during the past few years, and can require a long time to liquidate,” Peltonen says. “”Corporate bonds have normally a larger issue size and deeper market than most structured bonds – so their liquidity is assumed better even when their credit quality sinks.”