Experts Weigh Direct, Indirect
Impact Of S&P’s U.S. Downgrade
BY MARK E. RUQUET AND PHIL GUSMAN
INSURERS AND REINSURERS will not likely see a direct impact from Standard & Poor’s recent downgrade of U.S. long-term sovereign debt, experts say, but the
underlying economic conditions that led to
the downgrade could cause some of the same
issues experienced in 2008 to re-emerge.
Insurance Information Institute
President Robert P. Hartwig says the
downgrade has no impact on the
solvency of insurers or their claims-paying ability. He notes that U.S.
Treasury accounts for 6 percent of
invested assets, making it a minor
position in the overall financial picture
Hartwig also says 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. He explains that this
means insurers do not have to worry about
putting up more cash for reserves.
The Aug. 5 action by S&P to downgrade
the U.S. sovereign rating by one notch
from “AAA” to “AA+” is “trivial,” Hartwig
says, 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 regula-
tory treatment if it becomes necessary in
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 U.S. rating dropped to
“AA-,” capital charges moved upward only
by about 0.3 points.
Guy Carpenter did say that if the downgrade further weakens the U.S. dollar, for-
eign companies could look to target U.S.
carriers for acquisition.
Financial analysts also were not pushing the panic button in their evaluations
of the P&C industry.
Sandler O’Neil Research says in a note
that the “impact on the insurance indus-
try is reasonably modest.” The biggest
impact would be on carriers’
portfolios that hold U.S. government debt.