Continuing low interest rates have prompted life insurers to boost their statutory reserves, according to a new report.
Moody’s Investors Services arrives at this conclusion in a special comment, “Continued Low Interest Rates Have Driven U.S. Life Insurers’ Statutory Reserves Higher.” The report analyzes the publicly-filed annual statements of actuarial opinion of more than 50 insurance groups, including more than 200 individual companies. These documents record for each U.S. life insurer the results of asset adequacy (also known as cash flow) testing performed under a variety of different interest rate scenarios.
The rating agency reports a 57 percent increase in additional reserves, primarily related to the low interest rate environment, in 2012 versus 2011. These “additional reserves” due to asset adequacy testing are set up in addition to the statutory formulaic baseline reserves.
Additional reserves in 2012 were $10.1 billion, or 3.4 percent of industry capital vs. additional reserves in 2011 of $6.4 billion, or 2.3 percent of industry capital. Over 50 percent of the U.S. life insurance groups that Moody’s rates added reserves in 2011, 2012 or both, says Moody’s.