In most cases, life insurers must pay benefits only when the insured dies, reaches a certain age, or meets other conditions that are not strongly related to the state of the economy, and provisions that allow customers to surrender policies or withdraw annuity account value often include the following: He said there are features that limit the speed of making large amounts of cash payments.

Assets of life insurers: In the new report, Office for Financial Research analysts write that “the most significant weaknesses of existing life insurance companies are related to credit and liquidity risk.”

Analysts say life insurers’ portfolio risk is increasing.

“While the share of bonds in life insurers’ portfolios is decreasing, the shares of mortgages and alternative investments are increasing,” analysts add.

Analysts write that the share of commercial mortgage assets with a medium or poor risk rating in life insurance companies’ portfolios increased to 11%, or approximately double that in 2017.

Life insurers’ products: Analysts also suggest that customers may confront some life insurers with sudden and destabilizing demands for cash.

“Although many of their liabilities appear to be long-term, some life insurance companies’ obligations contain surrender or borrowing provisions that require the insurers to remit requested funds to policyholders or other liability holders,” analysts wrote. he writes.

Meanwhile, although life insurers have mountains of reserves backing policy and contract liabilities, “most life insurers have cash and short-term assets that make up a modest portion of total assets,” analysts say. “A sufficiently rapid and unexpected withdrawal during periods of stress in the institution or financial markets can lead to a rapid sale of assets, with an associated impact on market prices and volatility.”

Analysts emphasize restrictions on the ability of surrender charges and surrender penalties to reduce the risk of being “swamped by the insurance company.”

“These measures may be inadequate when concerns about the soundness of an insurer are serious,” analysts say.