Analysts watching U.S. life and annuity issuers say the issuers can shrug off ups and downs in the stock market, but they're starting to wonder about the possible effects of long-term changes in world credit markets.
S&P Global Ratings put out a commentary emphasizing how strong the U.S. insurers it rates look, but it acknowledged in an editor's note at the top that what will really happen depends partly on what happens to the underlying economic framework.
"S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses — specifically with regard to tariffs — and the potential effect on economies, supply chains, and credit conditions around the world," the firm said.
Other analysts are suggesting that some investors may have started a long-lasting shift away from U.S. assets.
What it means: U.S. life insurance policies and annuity contracts are financial burritos stuffed with fillings made mainly of investment-grade corporate bonds and related fixed-income assets, such as mortgage-backed securities.
Big U.S. life and annuity issuers look strong to their rating analysts, but they hold trillions of dollars in bonds issued by companies based in the United States, and some analysts are wondering about the United States.
The U.S. indicators: As of Wednesday, the credit, funding and safe asset indicators that the U.S. Treasury Department's Office of Financial Research tracks looked healthy, with liquidity stress and other types of stress levels far below the levels recorded during the dot-com crash in the early 2000s, the 2007-2009 financial crisis or the short recession caused in 2020 by the COVID-19 pandemic.
Neil Stein and other S&P analysts said the big life and annuity should be in a good position to get through a period of stock market turbulence.
"Life insurers tend not to have substantial holdings of public equities in their investment portfolios, and often hold none at all," the analysts said in their commentary. "They therefore typically have no material direct exposure to stock market volatility."
If the underlying economy deteriorates and the big companies that issue bonds start to default on them, that could hurt insurers' huge bond portfolios, but "there is currently no indication that market turmoil would indeed have such effects," the analysts said.
Life and annuity issuers also have plenty of capital they can use to buffer themselves against even a severe wave of defaults.
The bond market framework: For other economists and market analysts, one concern is trying to understand the effects of a possible end to investors' confidence in U.S. Treasury securities and other U.S.-related assets.
Torsten Sløk, the chief economist at Apollo, the parent of Athene Holding, noted in a comment that turmoil in the stock market normally causes 10-year Treasury yields to fall as investors rush to move money into safer assets.
"But this is not what is happening at the moment," Sløk wrote. "What could be the reasons why long-term interest rates are moving higher when the stock market is moving lower?"
One reason is that non-U.S. investors may be selling U.S. Treasurys, Sløk said.
Sara Midtgaard, an analyst at Nordea, a financial services company based in Finland, wondered whether investors still see U.S. Treasurys as risk-free, "safe haven" assets.
"Real money demand for U.S. Treasury bonds does not seem to be very strong," Midtgaard said.
Mohamed El-Erian, an Allianz advisor and the former chief executive officer of Pimco, said skepticism about U.S. government policy could rub off on other U.S. assets.
"This year's sharp dollar depreciation is fueling worries about an erosion in international confidence in the dollar and in U.S. assets as a whole," El-Erian said in a comment posted on X.
Credit: Przemyslaw Koch/Adobe Stock
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