Moody's Investors Services is cautioning in a new report that even if insurers receive temporary government equity through the Treasury's Capital Purchase Program (CPP), it does not expect near-term upgrades of insurers who participate.
However, added Jeffrey Berg, a Moody's senior vice president and author of the report, "the addition of capital could mitigate some downward pressure on ratings depending on how it is deployed and whether capitalization was seen as a primary weakness for a particular insurer."
Mr. Berg explained that the reason no insurer would receive a ratings upgrade by Moody's even if it received aid under the CPP, which is a component of the Troubled Assets Relief Program (TARP), is because it is temporary and it would add to an insurer's financial leverage.
"However," Mr. Berg added, "the addition of capital could mitigate some downward pressure on ratings depending on how it is deployed and whether capitalization was seen as a primary weakness for a particular insurer."
No insurance company except American International Group has received aid under the program.
Only Hartford Insurance Group amongst multiline insurers with significant property-casualty operations has disclosed it has applied for aid under the program.
A number of life insurers have applied, including Prudential, the Principal and Lincoln National, and news reports indicate that other property-casualty insurers with significant life businesses have applied, but all of the latter have declined to confirm it. The applications had to be submitted to Treasury by Oct. 14.
The Treasury Department has repeatedly declined to disclose when or if it would approve aid under the program to insurers other than AIG.
In his report, Mr. Berg said Moody's views the Treasury's capital injection program as a "positive" for insurers that qualify and obtain funds "because it can be supportive to an insurer's regulatory capitalization and is being injected at a time when companies have limited cost-effective access to the capital markets."
But, he said, any insurer participating in the CPP will be evaluated individually, "focusing on the reason for accessing TARP capital as well as the expected use of proceeds."
The report is titled "Moody's Assessment of the U.S. Government's Preferred Stock Investment in Insurers."
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