Best May Cut Ratings Outlook on Life Insurers

July 19, 2011

Ratings agency A.M. Best may lower its outlook on the U.S. life insurance and annuity sector to “negative” from “stable,” it warned Tuesday, as American and European sovereign debt concerns continue to grow.

Life insurers, with long-duration liabilities and a need to safeguard their assets to pay those claims, are major holders of government debt around the world. Given the current circumstances, Best said that has left them exposed.

“Continuing economic weakness in certain European countries and the debt crisis in the United States, which remains unresolved, have elevated the risk profile of life insurers,” the agency said in a statement.

Best is not the first to caution that insurers could feel the sting of sovereign debt woes. Standard & Poor’s warned last Friday that some U.S. insurers could be downgraded if the country were downgraded in the short term.

In a separate briefing, Best said it was looking at what impact a U.S. downgrade would have on the portfolios and financial strength ratings of insurers. Early high-level stress testing showed the biggest impacts would be on individual companies and would not necessarily apply across sectors or product lines.

(Reporting by Ben Berkowitz, editing by Gerald E. McCormick)

IJ Ed. Note: the full text of Best’s briefing is available at no charge.

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