The Life Product Review – Independent and Objective Life Product Intelligence

#358 | The Asset Side

By Bobby Samuelson April 26, 2023April 27, 2023

Quick Take

Now that the liquidity crisis in banking seems to have ebbed, a new potential crisis is emerging – credit. There is a real and growing prospect of significant losses in certain asset classes that have enjoyed more than a decade of returns with very little risk. This begs the question – what are life insurers actually invested in? The simple answer of fixed income with a splash of equity doesn’t really cut it. The reality is that life insurer balance sheets are, on average, only about 58% invested in traditional fixed income comprised of corporate bonds, treasuries and contract loans. The rest is generally made up of commercial mortgages (and CMBS) at 16%, collateralized loan obligations at 8%, equity joint ventures (think private equity) at 6%, residential and farm mortgages at 4% and affiliated common stock at 3%. But the averages mask the fact that some companies are way overweight to certain assets while others have virtually no exposure. If certain assets start to show cracks, then some companies are going to be far more exposed than others and they may even have to raise capital to plug the gap, something we haven’t seen life insurers do since the financial crisis of 2008.

Full Article

I think it’s only fair that I caveat this article with an admission – I feel like I know a fair bit about the liability side of a life insurer’s balance sheet, but I’m still in the process of learning about the asset side. The research for this article opened my eyes to just how much I have to learn. So consider this article a work in progress!

In the wake of the collapse of SVB, the immediate concern for both banks and insurers was liquidity – and rightly so. The autopsy of SVB showed that the bank had a tumor built out of a duration mismatch between its liabilities (deposits) and its assets (loans and investments) that turned malignant when a cadre of large depositors decided to withdraw their money en masse. The pure liquidity of the liabilities was the problem. Every insurer has the same fundamental duration mismatch, but as I wrote in #354 | SVB, Liquidity & Life Insurance, life insurers have layers of protection that largely insulate them from large and immediate liquidity calls. In the case of life insurers, the tumor is benign.

Much has changed in the past 6 weeks. The liquidity crisis seems to have passed, but now the concern has shifted to another potential point of failure – credit. Between the two, credit is far more problematic. If a tumor is the right analogy for a duration mismatch turned malignant through liquidity calls, then actual investment losses are gunshot wounds. There is no ambiguity about the effect. The only things that matter are how many shots, the size of the bullets and what they hit.

The broader financial press has started to sound the alarm about potential asset price and credit challenges. Besides the usual drip of doomsday predictions about equity prices and consumer confidence, there have been some tangible datapoints that are cause for concern. Consumer and real estate delinquencies are on the rise. Corporate bankruptcies are through the roof in the first part of the year. A mountain of financing is about to be rolled over on commercial real estate at higher rates and lower property valuations. Liquidity in some corners of the real estate market seems to have completely locked up.

As usual, the press has focused almost exclusively on the potential fallout at banks, which would have to fill the holes blown in their balance sheets from investment losses with new capital, as we saw in the Financial Crisis. The same basic logic applies to life insurers. If there are losses in the general account portfolio, then life insurers will have to rush to plug the gap with capital in order to keep their RBC ratio above water. However, as we saw in the previous article, the comparison between banks and life insurers isn’t perfectly clean. There are a lot of similarities, but also some key differences. But first, let’s talk about capital.

A Brief Primer on Risk Based Capital

Fundamentally, the easiest way to think about the difference between reserves and capital is that reserves cover expected outcomes and capital covers potential outcomes. Statutory capital for life insurers is Risk Based Capital, which comes in four flavors.

C2 covers mortality, morbidity and longevity risk. The basic idea is that if an insurer’s natural retained risk pool is below a certain size, then the C2 factor applied to the risk (as measured by Net Amount at Risk, in the case of life insurance) is higher because the company doesn’t have sufficient risk diversification. As the company’s natural risk pool grows, then the C2 factor drops off to a practically negligible level for large insurers.
C3 covers liquidity and interest rate risk. For most fixed products, C3 is pretty straightforward and is directly related to product features like surrender charges and market value adjustments, but C3 becomes a lot more complex when applied to variable products and particularly variable annuities with living benefits. That’s a conversation for another day.
C4 covers general business risk. It’s a catch-all. For fixed insurance products, the base C4 factor is 2% of premium paid and held for 12 months.

That leaves us with C1, which covers asset default risk and is at the heart of this article. The idea behind C1 is very intuitive – riskier investments require more capital than less risky investments. Equity positions, for example, have a 23.7% after-tax C1 charge, meaning that a company with a target RBC ratio of 350% would be holding $83 for every $100 invested in equities*. On the other end of the spectrum, Aaa rated bonds have an after-tax C1 charge of just 0.13%, meaning that the same $100 invested in Aaa rated fixed income securities requires just 46 cents in capital.

To demonstrate the effect of the C1 RBC charges across a diversified fixed income portfolio, take a look at Penn Mutual’s bond portfolio by NAIC categorization (1.A to 6). I pulled this data from the Asset Valuation Report, which shows the portfolio by NAIC ratings categorization, and then overlayed it with the NAIC C1 rates (without adjusting for PAF, which I’ll discuss later). The numbers are in percentages. The blue is the percentage of the portfolio in a particular category and the yellow is the percentage of the overall RBC charge attributable to the bonds in that category.

In terms of pure asset allocation, Penn Mutual is heavily weighted towards NAIC 1 category bonds at 70%, especially 1.A bonds (Aaa rated), which alone account for 22.5% of the total. Bonds rated in NAIC 2 come in at just 27.5% of the total. However, in terms of C1, NAIC 1 bonds only make up 32% of the total C1 and NAIC 2 accounts for nearly 50%. For NAIC 3 bonds, the effect is even more stark – the allocation makes up just 2.7% of the total portfolio but it accounts for 13% of C1. In aggregate, Penn Mutual’s C1 for this portfolio is 0.75%, which in dollar terms is a little over $100M. With a 400% RBC ratio, that implies total C1 RBC of $400 million, accounting for about 15% of the total capital at Penn Mutual Life Insurance Company.

In looking at a few other companies and running them through the same analysis, total C1 generally ranges (from what I can tell) from about 0.70% to 1.60%. You can also get an approximation of this by applying the old C1 factors, which changed in 2021, to the statutory data on high level 1-6 NAIC bond categorizations. Take a look at 25 large life insurers ranked from high to low:

There is a balancing act between capital and yield. Does it make sense to invest in an NAIC 1.A bond that yields 5% or an NAIC 2.A bond that yields 6%? The yield on the NAIC 2.A bond is certainly enticing, but it also eats up nearly 10 times the capital. Whether the tradeoff is worth it depends on the life insurer. It seems by looking at these insurers that it’s fair to say that companies that have an abundance of capital – Mass Mutual, Northwestern, Thrivent, Guardian – tend to push more into riskier investments in order to maximize overall yield. Larger insurers also have another benefit in the form of the Portfolio Adjustment Factor, which scales C1 to take into account the diversification of the credit risk in the bond portfolio. Assuming the exact same ratings distribution, a smaller portfolio with fewer issuers will have to post more C1 than a larger portfolio with more issuers.

However, there’s also a reserve dynamic to asset risk as well – the Asset Valuation Reserve, or AVR. The purpose of AVR is specifically to set aside reserves for credit losses and to amortize them into net income over time. It’s an additional buffer on life insurer balance sheets. The structure of AVR is the same as C1 in that lower rated investments receive higher factors for reserving, but the factors are much lower than in C1. NAIC 2.B, for example, has a 0.14% AVR factor versus 1.05% for RBC C1.

In looking at AVR balances for 35 life insurers, the average AVR balance was about 2.5% of fixed income assets and 20% of capital. While that may not seem like a lot, consider that C1 factors for the various asset classes are pulled from historical default data for fixed income. You’d have to dip all the way down to NAIC 3.A, the equivalent of a Ba2 rated below investment grade bond in order to get to an annual default rate that exceeds the average AVR balance across insurers.

Between C1 and AVR, there is a clear intent to ensure that life insurers have an adequate buffer against potential credit shocks and losses. However, the buffer is not so deep that it’s inconceivable for losses in certain asset classes to take a serious chunk out of an insurers capital. This begs the question – what are life insurers actually invested in? The typical answer is that life insurers buy fixed income instruments and then have side investments in sexy stuff like private equity. That’s true. But it masks the deeper point that not all fixed income is the same, especially in an environment like this one.

To get to a deeper answer, I pulled investment statements for 25 insurers and did my best to parse out the pieces of their portfolios down to the lowest common denominators. What I found was that beyond the broad category of bread-and-butter corporate bonds, life insurers actually pursue fairly different investment strategies stemming from presumably fairly different investment philosophies. And in a recessionary environment where bullets start flying, where exactly life insurers are invested may make all the difference.

Traditional Fixed Income – 58% of Invested Assets

For the purposes of this analysis, I’ve lumped corporate bonds, Treasuries, foreign sovereign debt, munis, US Special Revenue bonds and policy loans into the broad category of traditional fixed income. These instruments share fundamentally similar structure and economics – they have a maturity date, they pay coupons and they are issued by a single rated entity. This is what most people think of when they think of fixed income. It’s the vanilla stuff.

The average traditional fixed income allocation of invested assets for the 25 insurers I used for this study is 58%, with a low of 42% (MassMutual) and a high of 74% (Guardian). Corporate bonds represent the lion’s share of traditional fixed income for most insurers, but there are some outliers. Equitable and Brighthouse, for example, both have double-digit allocations to Treasuries. Several companies have mid single-digit allocations to US Special Revenue bonds. There are even a couple of companies with meaningful muni bond allocations, most notably Ohio National (10% of invested assets). And, finally, some companies have a meaningful slug of bonds issued by affiliated insurers, particularly Accordia (a whopping 14% of invested assets) and Equitable (4%).

I’m not an investment expert, but it seems as though there are some clear advantages and disadvantages of bonds. With bonds, everyone plays by the same rules. Seniority and issuer credit risk is clearly rated. There is a massive market for bonds, although I’ve read recently that the bond market may not be as deep and liquid as everyone thinks. There is long historical data on bond defaults. However, those advantages are also disadvantages for life insurers looking for an edge on risk-adjusted yield. Bonds always operate as the cornerstone of the investment strategy of life insurers, but the real appeal for investment managers at life insurers is the ability to hunt for opportunities in other asset classes.

Commercial Mortgages & CMBS – 16%

You don’t have to dig far into a life insurer’s investment portfolio to find some pretty interesting stuff and commercial mortgages certainly qualify. As I’ve said, I’m not an investment expert, so I’ve been trying to piece together this market as best I can. From what I can tell, many life insurers have a side business in writing large mortgages on commercial properties for development and acquisition. Principal, which has 20% of its assets in commercial mortgages, shows about 650 mortgages representing an aggregate of $16.465B. The average mortgage size for Principal is about $25 million. There are some small deals and there are plenty of deals above $50 million as well. What’s also clear in the statutory filing is that the mortgages are well covered. Appraisals are done regularly and the values are listed next to the mortgage balances. I couldn’t spot any where the values were particularly close. Clearly, there are some stringent loan-to-value requirements in place.

However, there is a lot of uncertainty about the state of the commercial mortgage market. The simple version of the story, as far as I can tell, is that commercial loans are relatively short-term and roll over more frequently than residential mortgages. According to Trepps LifeComps, which tracks the life insurer commercial mortgage market, the average duration is around 5 years, which implies something like a 7 year maturity. As these loans are rolling over in a higher rate environment, the fact that commercial property values have generally dropped and the cost of debt service has increased means that it may make sense for property owners to just walk away. That’s bad news for lenders.

However, not all commercial mortgages are created equally and it is basically impossible to look at a life insurer’s statutory filing and see what kind of property is underlying the mortgage. Industrial, for example, has fared much better recently than retail and office, both of which are under a huge amount of pressure. Two life insurers could have the exact same percentage allocation to commercial mortgages, but one could sail through a recession because their commercial exposure is overweight to multi-family housing and the other is overweight to office and retail. As an outsider, it’s impossible to know. The only classification we have is a rating specifically assigned to the commercial mortgages listed in the AVR section, but that is a credit indicator, not a property type tag.

This issue of transparency equally rears its head for Commercial Mortgage Backed Securities, which are structured credit instruments comprised of commercial mortgages that are sold as rated tranches. Higher rated tranches have lower yields but more loss protection than lower rated tranches, just like a normal bond. CMBS theoretically allow for diversification and protection benefits, but are even more opaque to outsiders than direct commercial mortgages.

What we do know, however, is that some life insurers are flat out more exposed to this asset class than others. Take a look at the 25 insurers ranked by their exposure to commercial mortgages (dark green) and CMBS (light green).

Collateralized Loan Obligations – 8%

Securitization of cash flows – the process of converting individual streams of cash into diversified and rated yield-bearing securities – has been around for a few decades. The theory behind securitization is that it allows individually risky investments to be pooled so that diversification can mitigate the risk. Imagine, for example, a pool of a thousand sub-prime mortgages. Writing any individual loan would be extremely risky. But owning a slice of the 1,000 mortgages means that your return is going to be the average risk for the pool. Even better if you have the ability to buy a slice of the mortgages that is protected from losses up to a certain point and has preference on the income generated by the pool. That is the magic of securitization.

The structure outlined above is the much-reviled Collateralized Debt Obligation (CDO) structure that has been blamed for much of the carnage of the Financial Crisis. The core thesis behind CDOs was that not all of the sub-prime mortgages would go bad all at once. There was geographic and homeowner diversification. But they went bad nonetheless and the CDOs that were laying around on bank balance sheets at the wrong time took down some of the most venerable banking institutions in our history.

These days, CDOs are out and CLOs are in. What’s in a CLO? The rough equivalent of sub-prime mortgages for corporate finance – loans made to mid-market, generally below investment grade corporations that are often issued in conjunction with private equity takeover and refinancing transactions. Despite the obvious similarities, there is no doubt that the CLOs of today are structurally safer than the CDOs of yesterday. The tranching is different, the equity first-loss component is wider and, most importantly, the underlying asset pool is more resilient. CLOs are naturally more diversified because the loans in the pool are made to a wide array of companies in all sorts of businesses. The only thing that could cause a systemwide problem would be an economy-wide recession that causes a lot of companies to go bankrupt – wait, isn’t that what everyone is saying is going to happen over the next year?

CLOs offer a distinct benefit to life insurers in that they have high ratings (and therefore low C1 requirements) while also producing yields above equivalently rated corporate bonds. Why is that? I’ve read a lot of insurer presentations about this topic and the logic always boils down to two things. First, CLOs are complex. You have to know what you’re doing. Not everyone does. Therefore, the market is less competitive. They call this a complexity premium. Second, the market for CLOs is thinner than bonds, which means that they are less liquid and potentially more prone to large credit-related price movements even though, historically, credit risk on CLOs has been better than equivalently rated corporate bonds. This is the illiquidity premium.

Considering that life insurers have the ability to either analyze CLOs themselves or partner with asset managers who specialize in CLOs and tend to hold assets to maturity, it’s little wonder that insurers love them. They seem to offer the perfect mixture of higher yields with the type of risk that life insurers can naturally handle. Who loves them the most? Take a look.

However, there’s a dark side to CLOs. The loans made to corporations are protected by loan covenants, which lay out the rules and financial ratios that the company must abide by in order to keep the loan outstanding. Covenants are the primary protection for the lenders. Over the past decade, covenants on corporate loans have been getting weaker and weaker, leading to the dominance of so-called “cov light” loan structures. These days, around 90% of corporate loans are issued as “cov light.” The protections for lenders have been declining over the past decade just like the underwriting standards for mortgages being packaged in CDOs prior to the Financial Crisis. Whether the outcome is the same remains to be seen.

The fact that some companies have heavily allocated to CLOs while others have notably eschewed them is evidence of a fundamental difference of opinion. Companies that are heavily allocated to CLOs are attracted by above-market yields that may be attributable to complexity and illiquidity premiums that life insurers are well positioned to handle and are assured of their decision by the historical resiliency of the asset class, even in the depths of the Financial Crisis. Companies that are less-hot on CLOs are likely wary of the fact that complexity and illiquidity always seem to cause problems at exactly the wrong time. For them, the higher yields in CLOs are an efficient market signaling that the default risk of these instruments may be significantly higher than the historical data signals. One view looks backward with confidence, the other view looks forward with skepticism.

One final note – Asset Backed Securities (ABS) are also included in this statutory filing category. In looking through the actual schedules for these loans, I see a lot more CLO than I see ABS and that lines up with my personal experience in talking with insurers. That said, some insurers still do quite a bit in ABS. These securities take recurring income from a variety of sources – think car payments, installment sales, franchise revenues, you name it – and securitize it. ABS deals seem to be all over the board so it’s even harder to make generalized statements about what will affect ABS as a market and what won’t.

Schedule BA – 6%

Schedule BA is a catch-all for a wide range of equity and joint venture asset classes. I’ve dug through Schedule BA for several insurers and my overall conclusion is that the bulk of Schedule BA tends to be private equity partnerships, many of which are centered on credit opportunities, with a side of real estate joint ventures, mostly unaffiliated with the life insurer but sometimes affiliated. Most of it is pretty risky stuff, which is why the C1 charge for Schedule BA is 10.27% after tax.

As a result, life insurers tend to limit their Schedule BA exposure, but it’s still a substantial piece of the pie for several insurers. Take a look at the insurers with the biggest Schedule BA exposure. For this analysis, I added John Hancock as well because they are a prolific and vocal user of Schedule BA assets to support their products, especially the Protection UL series.

It’s hard to get a read on the embedded risk in Schedule BA portfolios because the documentation isn’t great. For example, Securian invested over $10M in Gridiron Capital Fund IV in May of 2020. What is that fund? I have no idea. I’m sure I could go look it up and find out but that’s not the point. The point is that Schedule BA is a basket of relatively risky assets that varies greatly by life insurer. But what is clear is that most insurers have been pretty successful with these investments. Fair market value for joint venture stakes typically far exceed the cost of acquisition. Private equity has done very well for the last decade – and by extension, so have the Schedule BA assets for many life insurers.

Residential Mortgages, Farm Mortgages and RMBS – 4%

Individual residential mortgages and their structured counterpart, Residential Mortgage Backed Securities (RMBS), make up a relatively small piece of the puzzle for life insurers. This may be surprising because on the surface, residential mortgages have characteristics that should be prized by life insurers. They’re easy to originate, have naturally diversified credit risk and (theoretically) have long durations that match the long duration liabilities held by some life insurers. So why don’t life insurers own more of them?

The problem is that mortgages are fiendishly tricky thanks to “convexity,” a wonky financial term that sounds more intimidating than it actually is. Every person who has a mortgage understands convexity. When interest rates go down, people refinance their mortgages to get a lower rate, which means that 30 year mortgages end up being 3 year mortgages. When interest rates go up, then people hang on to their lower rate mortgages. If you extend that behavior out over a pool of mortgages, the effect is that rising interest rates extend the duration of the mortgage pool and falling rates shorten it.

In other words, mortgages do exactly the opposite of what an investor would want them to do. Rising rates lock investors into sub-optimal yields for longer while falling interest rates cause profitable mortgages to prematurely fall off the books. This makes asset/liability matching for mortgages rather difficult. A lot of mortgages on the balance sheet theoretically slows a life insurer’s ability to respond to rising interest rates (because the mortgages don’t roll over) and quickens the response to falling rates (because the mortgages fall off).

That said, life insurers still use them and some life insurers, particularly my former employer, use them quite a bit. Interestingly enough, some life insurers have also seemed to have built up a practice around farm mortgages, which is its own categorization for statutory filing. But at the same time, some insurers hardly use residential mortgages at all. There is clearly a split view on this asset class. Take a look:

Affiliated Common Stock – 3%

This is the value of the ownership stakes in companies affiliated with the life insurer, usually subsidiary life insurers. National Life, for example, has 18% of its invested assets as affiliated common stock, almost of which is Life of the Southwest. New York Life has 7% of its assets as affiliated common stock due primarily to New York Life & Annuity company. Penn Mutual has Penn Life & Annuity. Ohio National has its Ohio-domiciled captive reinsurer. The list goes on. For mutual companies, anything and everything owned by the company has to roll up to the life insurer and sits on the statutory balance sheet.

However, that’s not the case for stock companies that operate with a holding company structure. Prudential Insurance Company of America, for example, is owned by Prudential Financial. PICA owns Pruco, the primary writing entity of Prudential for life insurance and annuities, but PICA does not own Prudential Global Investment Management, Assurance IQ or even some of the captives that reinsure Pruco’s business.

The only company that stands out in terms of affiliated common stock owned by a life insurer not related to insurance activities is MassMutual. Of the $24.3B in affiliated common stock on its balance sheet, $17B is MassMutual Holding. What’s in that company? Based on an org chart in the statutory filing, it’s a hodgepodge of things but is dominated by Barings and Barings funds. If MassMutual was publicly traded, it’s a near-certainty that Barings would be run out of the holding company rather than the life insurer. But since MassMutual is a mutual company, it has to roll up under the ultimate mutual statutory entity.

What’s important about affiliated common stock is understanding the real value it brings to the enterprise. For example, the surplus from Life of the Southwest that shows up on National Life’s balance sheet isn’t the same thing as the value of Barings on the Mass Mutual balance sheet. Barings is a fundamentally different business than MassMutual. If MassMutual is having challenges with liquidity or asset quality, then Barings is a valuable asset that MassMutual could sell for potentially billions of dollars. The same can’t be said for Life of the Southwest, which would probably be facing the same issues as National Life given that they’re in the same business. Not all affiliated common stock is created equally, but it does show up equally on the balance sheet.

Other Assets

Beyond these broad categories, life insurers have a very long tail of invested assets. Cash and cash equivalents account for about 2% of overall invested assets and range from 6% (ANICO) to a scant 0.31% at United of Omaha. Unaffiliated bank loans also ring in at around 2% on average, but most companies have 0%, a few have between 1% and 4% of invested assets and MassMutual has a whopping 11%. Bonds from affiliated companies come in at 1% on average but, again, the distribution is skewed by a couple of companies with heavy exposures – Equitable at 4% and Accordia at 14%. Muni bonds are around 1% on average with most companies at 0% and Ohio National tipping the scales at 10%. Beyond those, convertibles, mutual funds, unaffiliated common stock, direct real estate holdings (usually home offices, occasionally income properties) and mezzanine real estate debt all come in at 1% or less on average and less than 2% for any given company.

The Capital Solution

The upshot of all of this is that if the bullets start flying in a recessionary environment, we may potentially see some dramatically different effects at life insurers. If commercial mortgages come under pressure, for example, then firms like Securian, ANICO and Northwestern may feel the heat more than other firms that are scant on commercial mortgages, such as MassMutual Ascend and National Life. If small and midsized firms get crushed under the debt load of corporate loans with floating rates, which is what underpins CLOs, then the damage will be felt more acutely at firms like Symetra, MassMutual Ascend, North American and American Equity Life. If it’s residential mortgages like in the Financial Crisis, then MetLife and Brighthouse may be the most exposed.

The quick and dirty math on any of these scenarios is that capital at life insurers tends to run at about 11% of total assets. If you add AVR into the mix, which makes sense given that we’re talking about capital losses, then the number jumps to something closer to 13%. If these companies are running at an average RBC ratio of 437% (according to Fitch for YE 2022), then losses on the order of 8% of assets could potentially push companies into rehabilitation territory. Are there certain asset classes at certain insurers where a massive correction could singlehandedly make that happen? I think the answer may be yes.

If that happens, then life insurers will have to do what their bank counterparts have done every time they’ve been faced with mounting asset losses – raise capital. For stock insurers, the path to raising capital is relatively easy because they can sell stock. For mutual companies and mutual holding companies, raising capital is quite a bit trickier. The usual path to “raise” capital is surplus note issuance. What is a surplus note? According to GAAP accounting, surplus notes are debt. They pay coupons and have maturity dates. But according to statutory accounting, surplus notes are equity because they are deeply subordinated in the capital structure of the insurer, effectively last in line to be paid out in the event of a default.

If surplus notes are the primary way of raising capital for insurers, then that begs the question of who buys those surplus notes? I don’t have a lot of visibility into this market, but of the $40 billion or so in outstanding surplus notes (as of 2019), at least some non-trivial portion of that seems to be held by other life insurers. I pulled Schedule BAs for three random companies and found around $1.5 billion of surplus notes on the balance sheet. That’s a long way from $40 billion, to be sure, but it seems to indicate that there is a bit of interdependency in the industry when it comes to surplus notes that could be problematic in a volatile environment.

The life insurance industry is probably better prepared for this moment than it has ever been. Capitalization is strong and life insurers have taken advantage of the ability to issue debt and surplus notes at ultra-low rates during Covid. But the reality is that the risk to the system is probably higher than it has been in a long time, at least if you take the doom-and-gloom financial press at face value. Asset allocation decisions will have consequences. Each company has its own set of exposures to certain asset classes that may prove to be problematic or its saving grace. Clearly there are some very different perspectives on how to invest in today’s environment that are playing out at each individual insurer. Which strategy will hold strong when the pressure ramps up? Only time will tell.

*Not actually. These are pre-tax numbers. After tax, the capital charge would be 23.70% and total capital would be about 94%.