BusinessPostCorner.com
No Result
View All Result
Thursday, November 30, 2023
  • Home
  • Business
  • Finance
  • Accounting
  • Tax
  • Management
  • Marketing
  • Crypto News
  • Human Resources
BusinessPostCorner.com
  • Home
  • Business
  • Finance
  • Accounting
  • Tax
  • Management
  • Marketing
  • Crypto News
  • Human Resources
No Result
View All Result
BusinessPostCorner.com
No Result
View All Result

IMF raises alarm over ‘contagion’ from private capital in life insurance

November 3, 2023
in Finance
Reading Time: 3 mins read
A A
0
IMF raises alarm over ‘contagion’ from private capital in life insurance
ShareShareShareShareShare

Stay informed with free updates

Simply sign up to the Private equity myFT Digest — delivered directly to your inbox.

The IMF has urged regulators to bear down on the liquidity risks presented by life insurers linked to private capital groups, warning of potential “contagion” to the wider financial sector and the real economy after a shift in ownership in the sector.

Groups including Apollo, Blackstone, Carlyle and KKR have flooded into insurance since the global financial crisis, as life insurers retreated from capital-intensive businesses in an era of rock-bottom interest rates. Almost 10 per cent — $850bn — of the US life insurance industry’s assets were owned or managed by private equity firms by the end of 2021, the IMF said.

The shift has meant a sharp rise in illiquid assets held by the insurers and a rapid expansion of offshore operations in less tightly regulated jurisdictions such as Bermuda.

“Supervisors are encouraged to work closely with other authorities in charge of systemic risk to analyse the possible contagion to other parts of the financial system and in the real economy,” the IMF’s Fabio Cortes, Mohamed Diaby and Peter Windsor wrote in a forthcoming report seen by the Financial Times.

More than 40 per cent of the assets of private equity-linked US insurance companies are allocated to illiquid strategies including structured credit, mortgage loans and mortgage-backed securities, compared with 30 per cent for other US insurers, according to the IMF.

Private equity-linked life insurers were “more vulnerable” than their peers if there was an increase in corporate defaults and credit downgrades due to rising interest rates, the IMF said. Valuation processes for illiquid assets held by the insurers should be subject to “intrusive” reviews by regulators, they added.

Regulators have become increasingly concerned about the risk that the value of an insurer’s illiquid investments drops sharply just as higher interest rates encourage life insurance policyholders to take their money back, sapping a firm’s liquidity and putting members’ payouts at risk.

Supporters of private capital groups’ moves into the sector argue that this view of the sector’s risks is outmoded, and that they are now often publicly traded alternative asset managers whose investment strategies have lifted the solvency of insurers in the sector.

Still, watchdogs’ fears have been amplified by the collapse earlier this year of the Italian life insurer Eurovita, which was owned by Cinven, the UK-based private equity group. 

“[Regulators] worry about the timescale of life insurance liabilities which can last for 20 or 30 years, whereas a private equity manager is looking at a much shorter timeframe for its returns,” said Andrew Crean of Autonomous Research.

The IMF officials also warned about the risks of private capital groups establishing offshore Bermuda-based reinsurance businesses.

Bermuda-based reinsurance assets have grown significantly since 2016 to reach more than $1tn, as private equity managers have sought out more flexible rules and tax advantages. Private capital managers use Bermudian operations to reinsure life insurance and annuity business from companies that they already own as well as from rivals.

Recommended

That limits the scope for onshore regulators in the US and Europe to scrutinise their activities.

Regulators are concerned that such intragroup reinsurance transactions could create conflicts of interest and concentrate risk in a way that would be less likely if the reinsurance was done by an independent third party.

The IMF is calling for the application of a globally consistent consolidated capital standard to limit incentives for regulatory arbitrage by insurers shifting business to locations where rules are less stringent.

The Bermuda Monetary Authority said that it conducted “strong cross-border collaboration and transparent information exchange” with other regulators. “The BMA would not approve any transaction that the [insurance company’s home] regulator does not support,” said the BMA.

Credit: Source link

ShareTweetSendPinShare
Previous Post

Sam Bankman-Fried’s final hours in court: Gasps, somberness, and despair

Next Post

Antony Blinken arrives in Tel Aviv as Israeli forces surround Gaza City

Next Post
Antony Blinken arrives in Tel Aviv as Israeli forces surround Gaza City

Antony Blinken arrives in Tel Aviv as Israeli forces surround Gaza City

HSBC mobile banking down for thousands across UK

HSBC mobile banking down for thousands across UK

November 24, 2023
Why Gen Zers and boomers like return-to-office more than millennials

Why Gen Zers and boomers like return-to-office more than millennials

November 26, 2023
20 states with the lowest real-estate property taxes

20 states with the lowest real-estate property taxes

November 27, 2023
Chinese fast-fashion retailer Shein makes confidential filing for US IPO

Chinese fast-fashion retailer Shein makes confidential filing for US IPO

November 27, 2023
What Companies Can Learn From The Supreme Court’s First Code Of Ethics

What Companies Can Learn From The Supreme Court’s First Code Of Ethics

November 25, 2023
Hong Kong crypto regulators under fire again after creators of Hounax exchange allegedly disappear with  million

Hong Kong crypto regulators under fire again after creators of Hounax exchange allegedly disappear with $19 million

November 28, 2023
BusinessPostCorner.com

BusinessPostCorner.com is an online news portal that aims to share the latest news about following topics: Accounting, Tax, Business, Finance, Crypto, Management, Human resources and Marketing. Feel free to get in touch with us!

Recent News

The Pragmatic Mind Of Henry Kissinger: A Distinctive Takeaway

The Pragmatic Mind Of Henry Kissinger: A Distinctive Takeaway

November 30, 2023
Israel and Hamas extend ceasefire to keep trading hostages for prisoners

Israel and Hamas extend ceasefire to keep trading hostages for prisoners

November 30, 2023

Our Newsletter!

Loading
  • Contact Us
  • Privacy Policy
  • Terms of Use
  • DMCA

© 2023 businesspostcorner.com - All Rights Reserved!

No Result
View All Result
  • Home
  • Business
  • Finance
  • Accounting
  • Tax
  • Management
  • Marketing
  • Crypto News
  • Human Resources

© 2023 businesspostcorner.com - All Rights Reserved!