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Life Health > Life Insurance

S&P speakers look for the next big risk

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New York — Standard & Poor’s Ratings Services has just finished with a conference in San Francisco on the upheaval in the health insurance and health care services markets.

This week, S&P attracted insurance company executives here to New York for a separate conference on the state of the life insurance, annuity and property-casualty insurance sectors.

See also: Life insurers scrape for yield

During the breaks at the New York conference, and on the podium, attendees and speakers struggled to find something definite and fresh to say about the pretty good, but that great, state of the life, annuity and p-c markets.

Bernard de Longevialle, lead analytical manager for financial services ratings at S&P, said, “The insurance industry starts from a position of strength.”

Paul Sheard, S&P’s global chief economist, declared that the U.S. economy has recovered. He scoffed at people who say the U.S. economy is doing poorly. “That’s kind of nonsense,” Sheard said.

But S&P makes money by helping clients analyze risk, not by encouraging clients to relax and spend more time bowling, and speakers focused on the possibility that some risk, or another that seems to be under control today, could eventually smack insurers on the head.

Current views of future risk have a direct effect on the cost and features of life and annuity products, by changing insurers’ appetite for various types of risk exposure.

See also: Here are the 21 trends that pose the biggest risks to global business in 2015

For a rundown of some the top contenders for Next Big Peril of the Year, keep reading.


5. Low interest rates

When S&P conference leaders conducted an automated poll of attendees, they ranked low rates as their top concern. 

Carmi Margalit, an S&P analyst, noted that insurers are hoping the Fed pursues a middle way toward increasing rates.

“Everybody’s looking forward to rising rates, but not rising too fast,” Margalit said, referring to the 1990s, when a rapid jump in rates led holders of insurance and annuity products to flee for higher-paying alternatives.

Sheard said the Federal Reserve Board will probably raise rates using a careful, adjust-and-check approach, not by using the kind of semi-automatic approach the Fed tried in 2004.

See also: Economists forecast measured rise in rates at S&P forum

Purple numbers

4. Hackers

James Belardi, chief executive officer of Athene Annuity & Life Assurance Company, said his company spends a fair amount of time thinking about cyber security.

One banker told Belardi his banks faces an average of about 12,000 attempted hackings per day.

See also: Tangled up in Pru

Piggy bank in a vise

3. Safety rules

John Johns, president of Protective Life Corp., said he worries U.S., European and international efforts to increase financial system stability may instead add risk to the life insurance industry.

“I worry a little bit about liquidity,” Johns said.

Regulators now require financial services companies to hold large quantities of liquid assets, to guard against the possibility that consumers may rush in and want to take their money out, but life insurance products are structured in such a way that the risk of the kind of a “run” a bank might face is even lower than at a bank, and requiring companies to hold large amounts of liquid assets may distort the markets for liquid assets in ways that add risk, Johns said.

Johns said, for example, that heavy demand for Treasury securities has taken up slack in the market for Treasuries and, in effect, reduced the liquidity of the market for the most liquid securities.

If conditions change, companies may need more liquid assets to meet regulatory requirements, and that could create unwelcome volatility in markets for liquid assets, he said.

Johns also explained that new capitalization standards for life insurers’ captive insurers could also boomerang, by forcing life insurers to cushion themselves against risks with an extremely low probability of occurring, such as severe pandemics, by buying assets that expose insurers to a high probability of facing ups and downs in assets prices.

See also: Fed bank fearful of insurance risks 


2. China

Neeraj Sahai, S&P’s president, ranked problems in China second on his list of risks facing the economy as a whole, including insurers.

See also: Foreign drugmakers face pressure to lower prices in China 


1. Unemployment and income inequality

Protesters throughout Europe and the United States have accused capitalists of pushing for policies that help “the 1 percent” at the expense of ordinary workers.

At the S&P conference, Sahai argued that income inequality is a serious threat to the world economy and to the companies S&P rates, including insurers.

See also: Brief history of wealth gap in U.S. and Europe


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