Best's Commentary: UK Life Insurers’ Balance Sheets Resilient Amid Gilt Market Turbulence

LONDON--(BUSINESS WIRE)--
The balance sheets of U.K. life insurers have proved resilient through a period of extraordinary turbulence in financial markets, according to a new commentary from AM Best.

The Best’s Commentary, “UK Life Insurers’ Balance Sheets Resilient Amid Gilt Market Turbulence,” notes a sharp rise in U.K. government bond yields toward the end of September created liquidity issues for defined benefit pension schemes using liability-driven investment strategies to help manage their exposure to interest rate and inflation risks.

However, the exposure of U.K. life insurers’ own balance sheets to financial risks associated with liability-driven investment hedging appears manageable, the commentary says. Although liability-driven investment strategies are employed, long-dated securities are used to match the majority of pension-risk transfer liabilities. In addition, where hedging is used, insurers often are able to post assets other than cash as collateral, reducing the liquidity risk associated with margin calls.

AM Best notes that the regulatory solvency ratios of life insurers have not been adversely affected by rising yields, as the impact on asset prices is offset by a decrease in liabilities.

Nevertheless, the reputational and regulatory risks associated with employing liability-driven investment strategies may have increased for the asset management divisions of U.K. life insurers, and in an increasingly challenging macroeconomic environment, insurers’ exposure to liquidity and credit risks will require particularly careful management.

To access a complimentary copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=324861.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Stanislav Stoev
Financial Analyst

+44 20 7397 0306

[email protected]

Richard Banks
Director, Industry Research – EMEA

+44 20 7397 0322

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Catherine Thomas
Senior Director, Analytics

+44 20 7397 0306

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Edem Kuenyehia
Director, Market Development Communications

+44 20 7397 0280

[email protected]

Source: AM Best