We Met the COVID-19 Challenge: Life Insurer CEOs to World

Forecasting

Dean said one lesson of the pandemic is the importance of the kinds of detailed data feeds Sun Life has developed in recent years, to track how the company is doing during a crisis.

He said that another lesson the pandemic has taught him is the risk planning is both necessary and likely to be incomplete.

The pandemic "is another reminder of the need for humility," Dean said. "It's so hard to predict stress, severe stress events, and tail events… We probably got the severity of the mortality stress roughly right. But never in a million years would we model that governments, without exception, around the world, would step in and shut down economies and then go around and float economies, both monetarily and physically."

Dean said insurers have to try to be prepared for the unexpected.

"You've got to have a ton of capital," he said. "You've got to have great risk management and be ready."

Investments

Life insurers manage trillions of dollars in assets,.

Because of risk management concerns and regulatory constraints, U.S. life insurers tend to invest heavily in "investment-grade corporate bonds," or debt securities issued by companies that have solid ratings from S&P, Moody's and Fitch.

The weakest investment-grade issuers have "BBB ratings," or "triple B" ratings.

For years, low and falling rates on bonds have plagued life insurers.

Life insurance company asset managers said during an investment management session at the S&P conference that one trend in the world of life insurance investments is a shift to a more nuanced approach to investing in debt.

Tod Nasser, a senior vice president for investment management at Pacific Life, said life insurers once thought in terms of investing in either public bonds, which are registered with the SEC and are available to the general public, or private bonds, which face less regulatory oversight and are available only to wealthy individuals and institutional investors.

Now, a varied debt security rainbow is replacing the old black-and-white public-or-private bond world.

Now, Nasser said, "there are highly liquid bonds, marginally liquid public bonds, well-syndicated Jumbo private placement deals, direct-originated private debt, crossover below-investment-grade private debt. I think it's much more sliding up and down the scale than it is picking one side over the other."

Nasser said Pacific Life has been happy with the performance of its traditional investments in BBB-rated bonds.

Anne Walsh, chief investment officer-fixed income at Guggenheim Partners, said her company prefers other types of credit-related assets over triple B corporate debt.

"Our view has been that triple B credit has actually been a mispriced market, and particularly that for triple B minus type of credit," Walsh said. "And most especially for long triple B credit. Investors were actually not getting paid for that downgrade risk."

In the past year, she said, the Federal Reserve Board changed the market by creating temporary programs that put a floor under investment-grade corporate bonds values.

But Walsh said she worries about the narrow difference between what the federal government now pays to borrow money and what triple B-rated companies pay to borrow money.

"You get a sense of the fact that we're getting to that level where you're really not getting compensated to take that risk," Walsh said.

(Image: NIH)