What You Need to Know
- The Fed report is separate from the Financial Stability Oversight Council report.
- Officials say life insurers now have more securities lending and repurchase agreement liabilities.
- Those nontraditional liabilities are more vulnerable to rapid withdrawals than most policyholder liabilities are, officials say.
Federal Reserve Board officials think life insurers look a little financially pale.
Officials talk about their concerns in a new financial stability report.
The report is different from, and a complement to, the Financial Stability Oversight Council’s financial system tracking reports.
Life insurers earn much of the cash they use to support benefits by using premium revenue to buy high-grade corporate bonds and other fixed income investments.
What Your Peers Are Reading
Life insurers themselves and rating analysts say that life insurers’ finances are strong, given life insurers’ need to cope with very low interest rates on bonds, and they emphasize that product structures reduce customers’ ability to rush in to withdraw contract value quickly.
Officials at the Federal Reserve Board say life insurers look weaker to them.
“Liquidity risks at life insurers remained at post-2008 highs and have been increasing,” officials declare in the heading over a life insurance section. “Over the past decade, the gap between the liquidity of the assets and liabilities of life insurers has increased, potentially making it harder for life insurers to meet sudden withdrawals of their deposit-like liabilities.”