At least 49 life and health insurers have more junk bonds than capital, making them vulnerable to the sharp decline in junk bond prices that began in September, according to Weiss Ratings, Inc., the only independent provider of insurance company ratings and analyses.
According to a recent study conducted by Weiss, the 49 companies hold $41.4 billion in junk bonds, or more than 43 percent of the $95.4 billion held by all 1,095 life insurers reviewed. On average, the 49 companies have $1.20 invested in junk bonds for every dollar of capital, said Weiss. The industry average is 48 cents for every dollar.
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Despite the fact that the current decline in the junk bond market does not have an immediate impact on an insurer’s financials, it could be an advance warning of higher default rates on junk bonds in the future, and thus could significantly affect the profits and capital of the insurers.
Weiss pointed out that not all insurers holding junk bonds are financially weak. Some companies have other offsetting strengths, such as high capital levels or strong stable profits, which can help them steer away from future financial problems and protect consumers’ safety.
