The National Association of Insurance Commissioners, which
is governed by the chief insurance regulators from all 50 states
and sets standards best practices for the insurance industry, is
looking into long-term solutions on how statutory accounting
treats negative IMR, Fitch said.
(Reporting by John McCrank; Editing by Sonali Paul)
NEW YORK, April 3 (Reuters) - Rising interest rates are
eating into the reserves that U.S. life insurers must hold to
deal with rate fluctuations, ratings agency Fitch Ratings said
on Monday, creating an accounting issue that could impact
insurers' income.
Interest maintenance reserves (IMRs) smooth insurers'
balance sheets by showing interest-related capital gains and
losses on fixed-income assets, and amortizing those gains and
losses into income over the remaining life of the investments
sold.
The accounting standard meant that insurers seeking to take
advantage of rising interest rates last year ended up recording
losses in their IMRs on bonds with lower yields that they sold
before maturity to make way for new, higher yielding bonds.
IMR balances, in aggregate, slumped 57% in 2022 from a year
earlier to $12.5 billion, while the number of insurance firms
with negative balances grew to 23% from 8% in 2021, Fitch said.
IMR balances are expected to continue declining this year,
Fitch said.
"Life insurers' strong liquidity position and cash-flow
matching strategies should mitigate the effect of continued
realized losses in the near term," said Jack Rosen, a director
at Fitch.
Negative IMR balances are currently restricted from being
admitted as assets under statutory accounting rules, creating a
drag on insurance firms' capital and surplus, but some insurers
have received permission from their respective state regulators
to admit the negative balances, Fitch said.
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