Insurers Facing Credit Downgrades In The Months Ahead
Investment losses are beginning to take their toll on the insurance industry and Fitch Ratings Services has revised their ratings outlook for a dozen sectors in insurance and reinsurance globally.
The Negative Outlooks reflect the significant falls in global credit and equity markets, and unprecedented market volatility and uncertainty. Of greatest concern to Fitch are declines in the market value of investment holdings that have led to significant declines in economic capitalization and profitability for many insurers.
Ongoing market volatility means there is potential for significant further reductions in capital as market values further decline, and additional impairments are recognized. Declines in investment performance are impacting essentially all insurers, to varying degrees.
It’s really not surprising considering that stock markets around the world have taken a real pounding in recent weeks. For years, investment income has made up the bulk of the industry’s profits but the current financial crisis has pretty much wiped out those gains.
Future credit downgrades will hamper already difficult access to capital markets and further constrain liquidity. We may see additional insurers seeking government relief as was the case with American International Group, which was forced to seek out a Federal Reserve loan in order to avoid bankruptcy.
Whether or not the government will have to earmark money as it did for the banking system remains to be seen. However with the world facing a long economic downturn, such a relief program may become necessary.
