Some of the UK’s largest insurance companies are believed to have had a meeting with Treasury to discuss their concerns about the impact that any further nationalisation of any UK banks could have on their important corporate bond holdings.
These insurers own around £160bn-worth of these corporate bonds, with the majority being issued by financial institutions, according to Cazalet Consulting, usually to support insurers’ with-profits and pension annuity business. Insurers are believed to have a great deal of concern about their exposure to UK banks through these bonds.
The Financial Services Authority (FSA) has already allowed insurers some flexibility on meeting their individual capital guidelines in certain scenarios so they don’t have to sell assets in a falling market.
The insurance companies are understood to be lobbying for bondholders to be pushed further up the creditor hierarchy in the event of bank nationalisation.
One expert said that the insurers are asking the Government not to let these bondholders lose out but instead make us, the taxpayers, fork out for these bonds when in the markets they are worth little or nothing at all.
The Association of British Insurers (ABI) stated that corporate bond values are falling at the moment but insurance companies can and do withstand falls in their market price. They do not become suddenly illiquid in a crisis. Even when an insurer has come under pressure in past years, it has continued to pay claims due.
Cazalet Consulting have said that the banks have been issuing corporate debt, which has been bought up by insurance companies to back with-profits and pension annuities, so if there are any issues these companies are quite right to be concerned.
Let’s hope that there aren’t any issues here and that we can continue to find annuity quotes reflecting the best annuity rates. If that doesn’t work, we might have to consider other pension options instead.
