“Insurers’ stable liability and funding profiles will generally enable them to hold bonds until maturity, reducing pressure to sell them at a loss,” Fitch mentioned in its evaluation. “However, financial system interconnectedness and second-order effects could present short-term challenges.”
Analysis by AM Best corroborated that US insurers’ publicity to bonds issued by the now-failed Silicon Valley financial institution is comparatively small.
The insurance coverage score company mentioned solely eight insurers have bond exposures higher than 2% of their capital and surplus, with the best being lower than 5%.
Despite the minimal publicity, AM Best warned that “ramifications for equity portfolios could be more significant.”
Five US insurers have fairness exposures concentrated within the broader financial institution and belief sector which might be higher than their capital, in line with the evaluation, and 17 have exposures totalling at the least half their capital.
“Insurers that conduct detailed evaluation on the influence of rising rates of interest on their asset-liability portfolios and handle their impacts via capital and different threat administration instruments will fare higher in these occasions than these which might be much less well-managed,” mentioned Jason Hopper, affiliate director, business analysis and analytics, AM Best.
SVB, which catered primarily to higher-risk tech startups, suffered as greater rates of interest made it more durable for financially strapped enterprise capital corporations to entry funding. As a end result, many pulled their deposits from the financial institution.
According to AM Best, suppliers of director and officers (D&O) insurance coverage for startups and enterprise capitalists might have confronted vital claims might have confronted vital monetary misery.
“Since startups are by nature much more agile and less risk-averse than other companies, their directors and officers often make decisions quickly,” mentioned David Blades, affiliate director, business analysis and analytics, AM Best. “Therefore, the potential for D&O claims for startups would have been high in the case government had decided not to help the depositors.”
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