Banking & Finance

Insurance Industry Exposure to Silicon Valley Bank Bonds Minimal

Life insurers are not as vulnerable to short term volatility

AM Best posted the following commentary to the market, on the heels of the SVB failure.

AM Best is making some data and commentary available related to the Silicon Valley Bank failure. Any updates and further information will be included in a commentary planned for next week.

According to the data (year-end 2021):

  • Just eight companies have bond exposure to SVB greater than 2% of their capital and surplus – with the maximum being less than 5%.
  • In the broader bank and trust sector, five insurers have equity exposure greater than their capital position, and 20 have exposure totaling at least half of their capital.


The commentary below can be attributed to Sridhar Manyem, senior director, industry research and analytics, AM Best:

SVB’s failure, along with the recent shutdown of Silvergate Bank, has caused a shock to a number of stocks in the banking sector. As we have already seen, some major bank stocks have lost significant value. Insurer exposure to the banking sector extends beyond stock price impacts though as many insurers depend on banks for lines of credit, distribution, hedges and other operational aspects.

 However, life insurers are not as vulnerable to short-term volatility and a run-on-the-bank scenario that we saw with SVB, or banks in general. Examples such as Equitable Life in the United Kingdom in 2001, General American in 1999 and Executive Life in 1991 demonstrate that the possibility exists, however remote, and emphasizes the importance of ERM in general, and liquidity risk management in particular. Investment managers are navigating an interest rate environment that has not been seen in decades, and lessons from the past can help insulate from future mistakes. Stress testing and scenario analysis of the impact of rising interest rates on asset-liability management and proactive management of these stresses through strategic actions and capital management would be considered favorably for insurers with interest sensitive exposures.