Commentary

Comparative Analysis of Liquidity Resources of Canadian and U.S. Life Insurance Companies

Insurance Organizations

Summary

This commentary discusses the liquidity resources of Canadian and U.S. life insurance companies. Liquidity, interpreted in the context of an entity's ability to meet short-term financial obligations, is among the key credit risk considerations for insurance companies given the size and complexity of their insurance and other liabilities.

Key highlights include the following:
-- For optimal liquidity risk management, cash buffers need to be supplemented with other liquidity resources, which can behave differently under stressed market conditions.
-- Canadian life insurers have access to a diverse range of liquidity resources but not to a government-sponsored liquidity lending program.
-- The notable growth in life insurers' private credit assets highlights the importance of appropriate liquidity risk management, which includes the diversity and availability of liquidity resources.

"As insurers' holdings of private and illiquid assets increase -- as has generally been the case for both Canadian and U.S. life insurance companies -- liquidity risk becomes an ever-more important consideration in our credit risk analysis," said Nadja Dreff, Senior Vice President, Sector Lead, Global Insurance & Pensions Ratings. "This is primarily the case because private asset valuations have not been thoroughly tested during a widespread market downturn."

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