“The consistent liability and funding profiles of insurers will generally enable them to hold bonds until maturity, reducing pressure to sell at a loss,” Fitch said in its analysis. “However, the interdependence of the financial system and second-order effects can present challenges in the short term.”
Analysis by AM Best confirmed that the exposure of US insurers to bonds issued by the now-failing Silicon Valley bank is relatively small.
The insurance rating agency said only eight insurers had bond exposures greater than 2% of their principal and excess, with the highest being less than 5%.
Despite the minimal exposure, AM Best warned that “the implications for equity portfolios could be more significant.”
Five of the US insurers have equity exposures concentrated in the banking sector and broader sector that outweigh their capital, according to the analysis, and 17 have exposures totaling at least half their capital.
“Insurers that perform a detailed analysis of the impact of higher interest rates on their asset-liability portfolios and manage their effects through capital and other risk management tools will do better in those events than those that manage less,” said Jason Hooper. Co-Director, Industry Research and Analytics, AM Best.
SVB, which mainly catered to high-risk tech startups, suffered because high interest rates made it difficult for cash-strapped venture capital firms to obtain funding. As a result, many withdraw their deposits from the bank.
According to AM Best, providers of principals and officers (D&O) insurance for start-ups and venture capitalists could have faced large claims and could face significant financial hardship.
“Because startups are inherently more agile and less risk-averse than other companies, their managers and officers often make decisions quickly,” said David Blades, associate director of industry research and analytics, AM Best. “Therefore, the potential for D&O claims to startups was high in the event that the government decided not to help depositors.”
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