Earlier this week, less-than-stellar financial figures from the United States, coupled with ongoing concerns over sovereign debt limits in Western Europe, helped to fuel real concern that debt contagion and a global double-dip recession might end in a sovereign debt default crisis.
While that is bad enough on its own, it poses a special risk for the life insurance industry, which has billions invested in non-U.S. sovereign risk.
Or does it?
Not really, according to a recent survey by Fitch Ratings. Based on its analysis of statutory financial statements for U.S. life insurers, the industry’s direct exposure to foreign sovereign debt is fairly restrained.
Fitch’s study notes that even though life insurers increased their non-U.S. government debt holdings by 36% between 2007 and 2009 (from $27.5 billion to $37.2 billion), this kind of debt only represents 1.39% of their total net invested assets. That was up slightly from 1.17% since year-end 2007. Moreover, non-government U.S. debt has never factored prominently in life insurance industry investing, Fitch notes.