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Rating Agency: Industry More Resistant To Stress

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NU Online News Service, Jan. 12, 2005, 4:22 p.m. EST

Liquidity at U.S. life insurers may have risen slightly between 2002 and 2003.[@@]

Analysts at Moody’s Investors Service, New York, give that assessment in an update on the model they use to measure life insurers’ liquidity.

“Liquidity” is a term that refers to a company’s ability to get to cash and assets that are easy to convert into cash.

Moody’s liquidity model “measures the adequacy of an individual statutory entity’s asset liquidity profile relative to the potential liquidity demands that could be placed on it in a stress scenario, given its liability mix,” Moody’s analysts write in the liquidity update.

The overall median 1-year liquidity ratio for the U.S. life insurers that Moody’s rates rose to 1.7x in 2003, up from 1.6x in 2002, the Moody’s analysts write.

The improvement in the ratio was the result of an increase in industry capital levels, the analysts write.

The analysts note that they have received questions about some aspects of their model, such as conservative valuations of certain types of assets.

In some cases, the analysts write, assets that are easy to sell today might be difficult for an insurer to sell if that insurer were facing a “stress scenario.”


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