NU Online News Service, Aug. 8, 1:11 p.m. EDT
Insurers and reinsurers will not be impacted by Standard & Poor's U.S. sovereign rating downgrade, says the president of the Insurance Information Institute (I.I.I.).
I.I.I.'s Robert Hartwig cites three reasons for the lack of impact on insurers:
- First, the National Association of Insurance Commissioners (NAIC) issued a statement saying there would be no impact on insurers' investments and that risk-based capital and asset valuation reserves would be unaffected. Hartwig says that means insurers do not have to worry about putting up more cash for reserves.
- Second, U.S. Treasury accounts for 6 percent of invested assets, making it a minor position in the overall financial picture for insurers.
- Third, the downgrade has no impact on the solvency of insurers' liquidity and their claims-paying ability.
Hartwig says Friday's action by S&P to downgrade the U.S. sovereign rating by one notch from "AAA" to "AA+" is "trivial" compared to the market disruptions three years ago, and he adds that Treasury bonds still remain the "safest security in the world" for investors.
In its statement, the NAIC says it sees no current impact on insurers' capital, but it would "consider changes to our regulatory treatment if it becomes necessary in the future."
Reinsurance broker Guy Carpenter issued a report saying it also sees no impact on the P&C industry. Guy Carpenter illustrates the point by noting that in an S&P European model where the rating dropped to "AA-," capital charges moved upward by about 0.3 points.
Guy Carpenter did say that if the downgrade further weakens the U.S. dollar, foreign companies could look to target U.S. carriers for acquisition.
Financial analysts were not pushing the panic button on their evaluation of the P&C industry.
Sandler O'Neil Research says in a note says that the "impact on the insurance industry is reasonably modest." The biggest impact would be on carriers' portfolios that hold U.S. government debt.
UBS' Brian Meredith says insurers view the downgrade as a "business risk." The extent of action by carriers would be to reduce "their exposure to government and government agency securities within their fixed-income portfolios."
Today, Moody's reaffirmed its "AAA" rating of the U.S. credit strength rating, saying that further measures to control the U.S. debt are necessary.
The rating service says downgrade could be triggered before 2013 if the federal government fails to agree on a plan that keeps the federal debt to GDP ratio from peaking "not far above the projected 2012 levels of near 75 percent by the middle of the decade and then declining over the longer term."
This morning, S&P held a conference call discussing its decision.
Analysts David Beers and John Chambers emphasize that the reason for the downgrade decision was the political inability of U.S. leaders to take the initiative and find a solution to the debt problem.
The United States rating could return to "AAA" status when there is broader fiscal consensus and a "robust" fiscal package agreed upon in Washington.
The analysts made a point of noting that no country with an "A" rating has ever defaulted on their investment grade bonds.
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