Whether those bonds will be impaired remains to be seen, AM Best said. The impact on equity portfolios could be more significant, as some big bank stocks have already fallen significantly in value, according to the comment. Five US insurers have equity exposures that are concentrated in the broader banking and trust sector that exceed their capital, and 17 have exposures of at least 50% of their capital.
“Many insurers are dependent on banks for operational aspects but are generally not as vulnerable to bank run-on scenarios, although they can occur as they have in the past, and emphasize the importance of a robust risk management structure, particularly for annuity authors at one environment of rising interest rates,” said Jason Hopper, Associate Director of Industry Research and Analytics at AM Best. “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 will do better in such cases than those that are less well managed.”
Continue reading: AM Best confirms CopperPoint’s financial strength
SVB has primarily focused on riskier tech startups, which have been hit by rising interest rates and shrinking venture capital, AM Best said. As interest rates rose last year, venture capital firms found it harder to access financing, and many withdrew theirs deposits from the bank.
Had the US government not intervened to make all depositors healthy, the insurers of directors’ and officers’ insurance for venture capitalists, as well as the insured of financial institutions that support such ventures, could have faced financial difficulties as they operate on very thin capital, said AM Best.
“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 of industry research and analytics at AM Best. Lawsuits for startups would have been high if the government decided not to help depositors.”
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