Moody’s Investors Services brought reporters to its offices in downtown Manhattan Wednesday to explain how its analysts see the insurance world.
Moody’s and other rating agencies are still recovering from the firestorm of regulatory scrutiny they passed through during the Great Recession.
But what analysts at the firms think can still have a big effect on insurers, producers and customers, because the firms’ ratings influence how much insurers pay to borrow money, whether insurers can borrow money, and whether insurers are viewed as being stable enough to write products that may pay off far in the future, or may pay benefits over long periods of time.
The rating agencies can also affect insurers’ investment yields. by influencing what other entities, including the U.S. Treasury, pay when they borrow money.
For a look at three drivers Moody’s insurance analysts can see outside their office windows, read on.
1. Big construction projects.
It’s hard to take a picture in a Moody’s conference without a crane growing out of someone’s head.
Cranes are soaring all over southern Manhattan, and in many other real estate markets around the world, because the commercial real estate market has been doing well. The construction business is booming.
Joel Levine and Robert Riegel, Moody’s insurance analysts, mentioned real estate when talking about how U.S. life insurers have been doing at a time when interest rates on the kinds of high-grade corporate bonds they favor have fallen somewhere near the center of the earth.
“The life companies have managed through the low interest rate environment pretty well,” Riegel said. “Probably better than we expected.”
Life insurers have kept breathing in spite of the lack of interest yield air flow thanks, in part, to the help low rates have given to stock prices; to the fact that most bond issuers have made their payments; and income from alternative investments, Riegel said.
Levine said high stock prices have helped by increasing the amount of asset-based income coming from products such as variable annuities, and by reducing the amount life insurers have to pay to make good on the minimum guarantees associated with annuity products and other stock-linked products that offer guarantees.
The alternative investments helping life insurers include allocations in emerging markets, in private placements, and in the kinds of real estate-related asset classes that may lead to cranes rising up over Manhattan.
The level of allocation in alternative investments “is well within the normal bounds,” Levine said.
But life insurers are assuming more risk than they were willing to assume in the years right after the Great Recession, Levine said.
Image: Robert Riegel and Joel Levine (LHP/Allison Bell)
2. Two wings that can’t flap.
Moody’s analysts who are looking out the right windows can see construction crews working on a new World Trade Center transit hub designed by the architect Santiago Calatrava. Calatrava wanted the roof to have two dove-like wings that could open up to the sky.