In this AMBestTV episode, Ken Johnson, senior director, and Thomas Rosendale, director, both of AM Best, examine how changes in product mix and asset allocation, along with a focus on asset liability and enterprise risk managements, will likely affect life/annuity insurers in the event of an economic slowdown.
Click on http://www.ambest.com/v.asp?v=la719 to view the entire program.
Although some of the same precursors of the 2008-2009 financial crisis are repeating today, AM Best believes the life/annuity industry is much more resilient than a decade ago and well-positioned to navigate future challenges. Johnson highlighted some of the similarities in today’s market.
“I think one of the common threads is a very strong equity market,” said Johnson. “In addition, there was a lot of hope that interest rates were going to push off of a historic low. The credit environment itself was also very benign. Pundits at the time were warning about a potential equity correction. They were concerned about a downturn in the credit environment and actually a flat yield curve, which often is a precursor to a recessionary environment.”
Rosendale addressed whether insurers are in a better position today to deal with a financial crisis, saying that insurers have made product de-risking a priority and that regulatory action could ease potential reserve and capital volatility.
“The NAIC is really looking into the disconnects associated with statutory accounting rules, particularly around variable annuities. I believe the changes they are implementing will reduce that volatility, so if we see some equity and interest rate movements going forward, it is going to have less of an impact on the inforce books of variable annuity business. We have seen some of the risk, as well as some of the volatility come off the books, driven not only by insurer action but also regulatory action. The combination of the two I believe puts the market in a little better position to weather a crisis going forward,” he said.
To access a copy of this special report, titled, “Are Life/Annuity Insurers Prepared to Weather Another Economic Downturn?” visit http://www3.ambest.com/bestweek/purchase.asp?record_code=286972.
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