Revaluing Liquidity And Solvency

Why investors see life insurance as a safe haven

by Wm. Scott Page

The world has been experiencing a lot of uncertainty and turbulence in recent times. From the global pandemic to economic downturns, there have been several events that have impacted the financial system. As a result, many investors are seeking safe havens to invest their money, particularly after the failure of Silicon Valley Bank. While some traditional investment options may seem risky, the life insurance industry has remained a safe bet for investors during times of crisis.

One notable event that sent shudders through the entire financial system was the abrupt closure of Silicon Valley Bank. The bank’s high exposure to interest rate increases in the bond market weakened its balance sheet, but when many of its tech sector borrowers started withdrawing their deposits, it started a bank run that eventually led to its closure. All the bank’s customers were eventually made whole, but the event highlighted the risks associated with investments in traditional financial institutions such as banks.

In contrast, the life insurance industry has remained solid and steadfast during times of crisis. For decades now, we have seen the many different ways that the life insurance industry touches consumers’ lives. While there may be concerns about the liquidity and solvency of some banks, the same cannot be said for the life insurance industry.

Looking at the big picture solvency questions, there is truly no comparison between what happened at Silicon Valley Bank and life insurance companies. Such differences in liquidity make a comparison nonsense. Life insurance companies are structured much more conservatively and have less exposure to a single factor like interest rates. Their reserve levels are generally much higher, and it’s not easy to just pull all the money out of a life insurance policy.

While there could theoretically be a run on the cash value of policies, the chances are infinitely remote. Anyone who has their retirement savings tied to insurance policies has no real concerns whatsoever. Some insurance companies may have similar interest rate exposure and bond exposure as Silicon Valley Bank, but because of the regulatory requirements of insurance companies, it was truly minimal, and only a small number of insurance companies showed even a negligible amount of exposure to this type of risk.

A Proven Experience In Weathering Crisis

If you’re looking for a place to invest your cash or seeking a safe investment, it may be time to look at options afforded by the life insurance industry. The insurance industry is incredibly safe financially, with some companies being more than 100 years old and have weathered financial crises ranging from the Great Depression to World War Two, to the inflation crisis of the 1970s, Black Monday in 1987, the Great Recession, and the Covid 19 pandemic. Some of these companies have consistently paid dividends for decades. Therefore, if you’re looking for a safe haven, the insurance industry might be a great choice.

Additionally, the crisis has boosted the value of insurance policies on the secondary market. Whenever there are financial challenges, investors often flee traditional risky markets to go towards more conservative investments like within the insurance industry. We are seeing individuals who are very interested in building portfolios of insurance policies, purchased as life settlements because they believe in the safety of the insurance industry.

Wall Street institutions and wealthy accredited investors alike are seeing the safe harbor of the insurance industry. As a result, managed portfolios are being run by huge Wall Street firms that have incredible confidence in the industry. This confidence is based on the insurance industry’s history of stability and security, making it an attractive investment option for many investors.

The life insurance industry has proven to be a safe haven for investors during times of uncertainty. While traditional financial institutions may be risky and subject to unexpected events like the closure of Silicon Valley Bank, the same cannot be said for the life insurance industry. With its conservative structures and high reserve levels, the insurance industry remains a stable investment option. This is further confirmed by the growing interest in purchasing life insurance policies in the secondary market by Wall Street firms and investors.