Some Insurers May Have Taken Bond Market Liquidity for Granted

Typical insurance company investment managers worry at least some about every imaginable risk, but they may not have worried all that much about the possibility that the bond markets could freeze up.

Analysts at Cerulli Associates have raised that possibility in a new look at the state of asset and wealth management in the United States.

The analysts have based the review largely on survey data, asset data and other data collected in 2019, or based on indicators reflecting the world as it existed in 2019, before COVID-19 and pandemic-related social distancing rules came along.

The analysts report, for example, that 69% of the financial professionals who participated in a 2019 financial professional survey agreed that  access to guaranteed retirement income was a very important factor to consider when investing in an annuity, and 59% agreed that principal protection was a very important factor.

Resources

• The Cerulli report is available, behind a paywall, here.
• An article that covers what some life insurers are saying about their annuity operations now is available here.

Just 11% of the financial professionals asked about reasons for not recommending variable annuities cited as concerns about insurers’ solvency as a top negative, compared with 79% who listed excessive all-in fees as a major turnoff.

In another section of the review, the Cerulli analysts summarize the responses to a survey of people who help insurers of all kinds manage their assets.

All of the participants said low interest rates and low investment yields are very concerning.

About 21% said market volatility was very concerning, and 20% said bond issuer credit default risk was very concerning.

Just 13% said fixed-income market liquidity was very concerning, and 27% said fixed-income market liquidity was not concerning.

The Cerulli analysts write that some insurers with liquidity concerns have been using exchange-traded funds, or ETFs, to address those concerns.