US insurers likely had $1.16bn invested in failed banks

US insurers likely held $1.16 billion in debt and equity of three failed US banks Silicon Valley Bank, Silvergate and Signature Bank, a sum which the  Fitch ratings agency considers sufficiently “modest” to see insurers withstand losses and market volatility.

Life insurers bear most of the brunt, but also “exposures should have sufficient capital to withstand losses and related market volatility,” Fitch analysts said.

Stable liability and funding profiles will “generally enable” insurers to avoid having to sell any other assets at a loss driven chiefly by the change in interest rates, Fitch said.

Life insurer balance sheet liabilities seem stable on account of their long-term horizons and the surrender charges which disincentivize early withdrawals, Fitch notes. Non-life balance sheet liabilities are stable by definition on their risk-mitigation profile. Bank liabilities are comparatively capricious.

The shift in the interest rate environment that drove mark-to-market bond losses in 2022 may have created “near-term challenges” for insurers, but don’t really dent regulatory capital ratios which need not be pegged mark-to-market, Fitch reminds. Banks don’t have that regulatory pass.

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