Conning Webinar Outlines How NAIC Ruling May Help Life/Annuity Insurers Generate Greater Portfolio Income While Minimizing Drag on Surplus
February 14, 2024
HARTFORD, CT – February 14, 2024 – Leading global investment management firm Conning posted a webinar featuring a panel from its Insurance Solutions group discussing a recent NAIC ruling that may help life and annuity insurers take advantage of the higher interest rates in newer issue bonds while avoiding reductions in surplus.
The webinar “Developing a Positive Relationship with Negative IMR” reviews the ruling related to the life/annuity firms’ interest maintenance reserve (IMR), a statutory accounting item that allows insurers to smooth income over a period of years to help reduce volatility in income statements when they sell bonds. While the long period of declining interest rates meant most bond sales were for gains, leading to growing IMRs, the recent upward turn in interest rates means losses in bond sales and reductions in IMRs. Until recently, a negative IMR meant a reduction in surplus.
“With meaningful losses, life and annuity issuers might be hamstrung in their ability to quickly reposition portfolios and take advantage of some of the higher yields that are present in the market today,” said Matthew Reilly, managing director and head of Insurance Solutions.
Fortunately, the NAIC “has allowed for the admittance of negative IMR as an admitted asset that can go towards a company's surplus and total adjusted capital,” said Jeremy Lachtrupp, managing director. That will help ease any negative IMR impact on surplus, he added, but noted that it is a temporary rule that expires on January 1, 2026. It has other provisions as well, including that negative IMR is only allowed to be admitted to up to 10% of insurers’ capital and surplus on an adjusted basis.
While the unique needs of each insurer should drive any strategy related to IMR and the pursuit of higher yielding investments, the potential for insurers taking advantage of this change is significant, noted John Rup, vice president. He noted that the potential losses taken across the industry with this ruling could be as much as $66 billion. “Now alone, losses don't tell the whole story,” he said. “The notional figures reinvested into higher yielding securities … This is a meaningful impact for value creation.”
To view the webinar, click here.
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Conning (www.conning.com) is a leading investment management firm with more than $214 billion in global assets under management as of December 31, 2023.* With a long history of serving the insurance industry, Conning supports institutional investors, including insurers and pension plans, with investment solutions, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.
*As of December 31, 2023, represents the combined global assets under management for the affiliated firms under Conning Holdings Limited (CHL) and Cathay Securities Investment Trust Co., Ltd. (SITE). SITE is a separate entity under Cathay Financial Holdings Co., Ltd which is the ultimate controlling parent of all Conning entities.
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Myra Lee
Conning
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