The life insurance industry is at risk if there is a sharp rise in bond yields, with an extreme situation potentially causing insurers to liquidate investments reaching $1 trillion in the United States and Europe, the International Monetary Fund warned on Tuesday.
Vulnerabilities have increased for life insurers, the IMF said in its Global Financial Stability Report, noting the industry is at the “center of fixed income markets” owning about 20% of global bonds and 30% of credit investments. Life insurers have long-dated liabilities and are a critical source of demand for bonds with long maturities, wrote the IMF’s Fabio Cortes and Deepali Gautam in the report.
