NU Online News Service, March 12, 2003, 11:07 a.m. EST – Standard & Poor’s Rating Services, New York, is making a major change in the discount rate it uses when valuing the bonds and preferred stocks in insurance company investment portfolios.
S&P is cutting the discount rate to 6%, from 8%.
The cut could reduce insurers’ capital ratios an average of 10% to 15%, and it could cut some insurers’ capital ratios as much as 25%, according to Jose Siberon, an S&P credit analyst.
S&P plans to put the change in the discount rate into effect in 2004. To compensate for the change, insurers will have to raise capital or reduce risk, Siberon says.
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S&P will also be excluding goodwill from calculations of total adjusted capital and changing the way it treats structured settlements.
Goodwill, created when one company acquires another, is the difference between what the buyer pays for a company and its fair market value.