A.M. Best: Debt Issue May Ding Life Insurers
Ratings agency increases consideration of a downgrade to U.S. life/annuity sector.
Insurance Networking News, August 10, 2011
P&C insurers may be safe for the time being, but the life industry has been left in an increased state of vulnerability as a result of the rating downgrade to the U.S. sovereign debt, according to A.M. Best. As a result, the ratings agency claims they have elevated consideration for a downgrade to the U.S. life/annuity sector from ‘stable’ to ‘negative.’
While the debt ceiling deal may have averted a default, it does not alleviate the uncertainties surrounding the credit quality of the U.S. sovereign debt, hence the S&P downgrade. Combined with the continuing weaknesses of European economies, insurers overall are dealing with elevated risk profiles. In particular, A.M. Best points out the necessity of U.S. treasury securities to insurer’s portfolios, particularly for life insurers. Thus, what has been a routine, risk-free investment in the past now stands on shakier ground, again, particularly for life insurers.
Broader macroeconomic concerns still loom over the industry as well. Here too the life industry finds itself in a potentially tougher position. As measured by A.M. Best’s Capital Adequacy Ratio, the agency estimates that “less than two percent of all P&C ratings units potentially could have seen their ratings impacted by the stress scenario,” whereas the life industry continues to portend more significant impacts.
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