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1. Just what you don’t want to read from The Bureau of International Settlements:
The life insurance industry has undergone a profound structural transformation since the Great Financial Crisis, amid a prolonged period of exceptionally low interest rates and evolving regulatory frameworks. This paper examines the systemic risks and policy challenges emerging from this transformation, with a particular focus on the growing involvement of private equity firms, the shift in investment strategies towards riskier and opaque assets, increased use of derivatives and greater reliance on asset-intensive reinsurance, often through offshore jurisdictions. Standard risk metrics indicate that the sector’s systemic importance has risen, notably in the Americas and Asia, due to heightened interconnectedness with the broader financial system. Liquidity risks have become more pronounced, stemming from greater use of short-term funding, policy surrenders, and margin calls on derivatives, while governance complexities and opacity in asset valuation further complicate supervision. Several measures could be considered to address these challenges, such as enhancing supervisory frameworks and disclosures, prudential charges to mitigate concentration risk and liquidity risk, harmonization of international standards and complementing supervision with a macroprudential perspective to monitor and address concentration risks and financial interlinkages at the system level. Ultimately, while the sector has demonstrated adaptability, its growing complexity and interconnectedness highlights the need for vigilant regulation to safeguard financial stability and preserve the sector’s critical role in the financial system. (Source: bis.org. The Bank for International Settlements (BIS) is often called the “central bank for central bankers”.)
2. Credit ratings on private loans held by US insurers may have been systematically inflated, the Bank for International Settlements has warned in a new paper on the growing risk of “fire sales” during periods of financial turmoil. Ratings on private credit investments have come under scrutiny following a rise in insolvencies and recent high-profile bankruptcies at car parts maker First Brands and auto lender Tricolor. The rapid collapse of the two businesses has rattled credit markets, with some investors highlighting concerns over their complex funding structures. Smaller rating agencies have captured market share in the fast-growing world of private credit by providing so-called private letter ratings, which are typically only visible to an issuer and select investors. US life insurers have been among the biggest buyers of such debt. The number of insurance securities rated by Moody’s, S&P and Fitch, the big three rating agencies, has been largely flat in recent years, while the quantity rated by smaller providers has grown rapidly. (Sources: ft.com. bis.org)
3. Goldman Sachs Chief Executive Officer David Solomon downplayed concerns that have surfaced following the collapse of US firms First Brands Group and Tricolor Holdings, and said he doesn’t see any systemic risk looming in the credit market. “I don’t see anything in the context of a handful of bad credit situations that’s leading me to say we have a systemic issue around the corner,” Solomon said in an interview with Bloomberg TV on the sidelines of the Future Investment Initiative in Riyadh. If the economy slows sharply, or if a major macro event shakes market confidence, losses would emerge across the system, he said. “But that’s different than a systemic crisis.” (Source: bloomberg.com)
4. Financial Times:
Daily share price swings worth hundreds of billions of dollars are becoming commonplace on Wall Street, highlighting the risks to investors as the Big Tech companies powering the stock market’s relentless rally grow more volatile.
Individual stocks have gained or lost more than $100 billion in market value in a single day 119 times so far this year, the highest annual total on record.
The rise of 12-figure stock swings partly reflects the huge size of companies such as Nvidia, Microsoft and Apple, which are all worth more than $3 trillion each and account for the bulk of the huge moves.
But even accounting for the stock market’s growth, the size of this year’s moves has been extraordinary. Bank of America analysis shows that 2025 has already punched through 2024’s record number of what it calls “fragility events” in Big Tech stocks, when share prices move well outside their usual range.
“We have large-cap stocks moving 10, 20, 30 per cent in a day,” said Abhi Deb, head of global cross-asset quant investment strategy at BofA. “That kind of price action used to be rare.” (Source: ft.com)
5. Quantitative Tightening, Part 1:
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