In this low-to-no interest rate environment (pathetic monetary policy), life insurers are having a tough time not only finding profit, but understanding what true risk is about. Now Life Insurers are trying to disregard risk in the hopes of finding more profit.
North American Life Insurers "Accidentally" Pile Up Massive Distressed Debt Holdings | Zero Hedge
Talks about how insurers are trying to get into riskier bond trades to eek out a profit. How Metlife and Prudential racked up losses related to the oil trade that blew up when Oil plummeted to below $50 a barrel. Now in order to help insurers find more ways to profit from Junk bonds the NAIC is considering allowing insurance companies to have a larger part of their portfolio that they can dedicate to riskier junk bond trades.
North American life insurers have accidentally doubled their distressed-debt holdings in just six months. In the future, they are poised to build on that mound by design.
Companies including Prudential Financial Inc. and MetLife Inc. held $1.32 billion of bonds that were in default, or close to it, at the end of the second quarter, their highest level since the middle of 2011, according to Bloomberg Intelligence data.
They did not intend to buy distressed debt: In many cases they bought investment-grade bonds from energy drillers and retailers that ended up heading south. Insurance companies’ trouble with these bonds underscores how even conservative investors have been hurt by plunging oil prices.
So what are regulators deciding to do? Ramp up the losses and double down on stupid.
But don't worry about the rising risk of bond portfolios at the insurers. Regulators are already working on a plan to relax capital requirements to accommodate increasing risk appetites at America's insurers. Guess moving down the quality curve is one way to combat a low-interest rate environment.
Even if distressed holdings are largely accidental now, regulators are considering proposals that could ease the amount of capital life insurers can use to fund junk bonds, which makes it more profitable for the companies to increase their investment risk. Life insurance companies are seeking more income as low bond yields globally corrode their investment returns.
Under current rules from the National Association of Insurance Commissioners, which sets standards for the U.S. industry, a bond with a rating four steps below junk needs to be funded with capital equal to at least 10 percent of the bond’s value before taxes. The NAIC is considering a proposal to lower that to around 6 percent.
Not sure how we as insurance agents could move to tell the NAIC they are making a mistake with this, anyone have any ideas?
North American Life Insurers "Accidentally" Pile Up Massive Distressed Debt Holdings | Zero Hedge
Talks about how insurers are trying to get into riskier bond trades to eek out a profit. How Metlife and Prudential racked up losses related to the oil trade that blew up when Oil plummeted to below $50 a barrel. Now in order to help insurers find more ways to profit from Junk bonds the NAIC is considering allowing insurance companies to have a larger part of their portfolio that they can dedicate to riskier junk bond trades.
North American life insurers have accidentally doubled their distressed-debt holdings in just six months. In the future, they are poised to build on that mound by design.
Companies including Prudential Financial Inc. and MetLife Inc. held $1.32 billion of bonds that were in default, or close to it, at the end of the second quarter, their highest level since the middle of 2011, according to Bloomberg Intelligence data.
They did not intend to buy distressed debt: In many cases they bought investment-grade bonds from energy drillers and retailers that ended up heading south. Insurance companies’ trouble with these bonds underscores how even conservative investors have been hurt by plunging oil prices.
So what are regulators deciding to do? Ramp up the losses and double down on stupid.
But don't worry about the rising risk of bond portfolios at the insurers. Regulators are already working on a plan to relax capital requirements to accommodate increasing risk appetites at America's insurers. Guess moving down the quality curve is one way to combat a low-interest rate environment.
Even if distressed holdings are largely accidental now, regulators are considering proposals that could ease the amount of capital life insurers can use to fund junk bonds, which makes it more profitable for the companies to increase their investment risk. Life insurance companies are seeking more income as low bond yields globally corrode their investment returns.
Under current rules from the National Association of Insurance Commissioners, which sets standards for the U.S. industry, a bond with a rating four steps below junk needs to be funded with capital equal to at least 10 percent of the bond’s value before taxes. The NAIC is considering a proposal to lower that to around 6 percent.
Not sure how we as insurance agents could move to tell the NAIC they are making a mistake with this, anyone have any ideas?