“Insurers’ stable liability and funding profiles will generally allow them to hold bonds to maturity, reducing the pressure to sell them at a loss,” Fitch said in his analysis. “However, the interdependence of financial systems and second-order effects could pose near-term challenges.”
Analysis by AM Best confirmed that US insurers’ exposure to bonds issued by the now-defunct Silicon Valley Bank is relatively low.
The insurance rating agency said only eight insurers have bond exposures of more than 2% of their capital and surplus, with the highest being less than 5%.
Despite the minimal exposure, AM Best cautioned that “impact on equity portfolios could be more significant.”
According to the analysis, five US insurers have equity exposures, concentrated in the broader banking and trust sector, that exceed their capital, and 17 have exposures of at least half their capital.
“Insurers that conduct detailed analysis of the impact of rising interest rates on their asset-liability portfolios and manage their impact through capital and other risk management tools will do better in such events than those that are less well managed,” said Jason Hopper , Associate Director, Industry Research and Analytics, AM Best.
SVB, which primarily catered to higher-risk tech startups, suffered as higher interest rates made it harder for troubled venture capital firms to access finance. As a result, many withdrew their deposits from the bank.
According to AM Best, providers of D&O insurance (D&O insurance) for startups and venture capitalists could have faced significant claims and faced significant financial difficulties.
“Because startups are inherently much more agile and less risk-averse than other companies, their directors and officers often make decisions quickly,” said David Blades, Associate Director, Industry Research and Analytics, AM Best. “Therefore, the potential for D&O Lawsuits for startups would have been high if the government decided not to help depositors.”
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