S&P: Insurers’ Investments ‘On Solid Ground’ Despite Subprime Credit Crisis

Standard & Poor’s Ratings Services has recently completed a survey covering all the insurance and reinsurance companies it rates globally to determine their exposure to U.S. subprime mortgage-related instruments.

In its report – “Survey Reveals That Rated Insurers’ Investments Globally Are In Prime Shape -” S&P concludes that “these sectors will navigate the recent deterioration in subprime mortgage-related assets with sufficient liquidity to meet their financial obligations.”

In an overall context S&P found that the “level of industry capital should be sufficient to absorb the volatility over the next year.” In consequence S&P indicated it would maintain “its stable outlooks on the U.S. personal and commercial property/casualty, U.S. life, global reinsurance, and managed care sectors.”

However, the rating agency indicated that “given the recent market volatility, we continue to be alert that more traditional bond and stock portfolios don’t also deteriorate and that underwriting results remain strong.”

S&P said its survey, which assessed subprime exposure as of June 30, 2007, revealed the following “key insights:”
– The vast majority of rated insurance entities have negligible subprime exposure.
– A small number of companies had subprime exposures that aren’t negligible. However, we consider these exposures manageable because these companies targeted asset classes rated ‘AA’ and higher. (Of the $91 billion in estimated total exposure, 93 percent is in ‘AA’ or ‘AAA’ tranches.)
– Global players usually acquired subprime exposure through their U.S. subsidiaries.
– The life sector generally had a greater percentage of subprime exposure. This isn’t surprising given life insurers’ longer tailed product liabilities, need for longer dated asset instruments, and pursuit of higher yields.

The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor’s credit ratings, research, and risk analysis, at: www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to: research_request@standardandpoors.com.

Ratings information can also be found on Standard & Poor’s public Web site at: www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search.

Source: S&P