AM BestTV: Insurers Untangle Exposures as Dependence Lessens on LIBOR, Say AM Best Analysts

In this episode of AM BestTV, Mira Laze, associate director, and George Hansen, senior industry research analyst, both with AM Best, examine the likely impact on insurers as the key reference rate is changed from the London InterBank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR). Click on http://www.ambest.com/v.asp?v=libor319 to view the entire program.

Hansen spoke about the reasons behind the transition away from LIBOR.

The issue stems from the methodology that is used to determine LIBOR, said Hansen. LIBOR is based on a survey of roughly 20 banks, indicating what they believe would be the overnight rate that they would use with intercompany or interbank loans. This has been subject to manipulation in the past, which has led to lawsuits and other forms of fines that banks have been assessed. LIBOR wont be available after 2021, as the banks are not going to be required to post those rates after 2021.

Laze highlighted the specific areas in which insurers should be concerned.

Some of the potential insurers exposure are the assets owned that are tied to LIBOR. In addition, insurance that links to LIBOR is another area to be concerned about, as well as reinsurance contracts, derivatives used in hedging, and any other external debt. AM Bests goal is to be able to understand where the firms have LIBOR exposure and to quantify the risk associated with LIBOR transition, she said.

To access a copy of this special report, titled, Transition From LIBOR: A Known Unknown for Insurers, visit http://www3.ambest.com/bestweek/purchase.asp?record_code=283394.

Recent episodes of AM BestTV include:

  • Converging Forces Drive Mergers & Acquisitions for Insurers in CIS Region, Says AM Best Senior Financial Analyst: Valeria Ermakova, senior financial analyst, AM Best, said business costs, bank consolidation and increased regulatory scrutiny have furthered mergers and acquisitions among Commonwealth of Independent States insurers: http://www.ambest.com/v.asp?v=cis_english319.
  • AM Best Managing Director: Insurers in Western Europe Look to Mergers and Acquisitions for Growth: Greg Carter, managing director, analytics, AM Best, said most rated insurers in Western Europe carry a stable outlook, but face challenges to grow faster than the mature markets they serve: http://www.ambest.com/v.asp?v=westerneurope319.
  • Blockchain Already a Presence in Captive Insurance Sector, Says Captive Panel: A panel of captive insurance experts at the Captive Insurance Companies Association (CICA) 2019 International Conference, discuss the ways blockchain technology potentially can help companies better manage captive-insured risks: http://www.ambest.com/v.asp?v=cica3319.

AM BestTV covers exclusive AM Best and insurance industry information and reports, targeted topics and key developments in the insurance, reinsurance and related sectors daily. Sign up for alerts of episodes at http://www.ambest.com/multimedia/ambtvsignup.html. View AM BestTV episodes at http://www.ambest.tv.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright 2019 by A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Lee McDonald
Group Vice President, Publication and News
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