Moody's Says Rating Triggers Are Down

Rating triggers in financial and insurance contracts are down 9% in 2007 compared with 2006, reducing incremental risk for both life insurers and, in particular, reinsurers, according to Moody’s Investors Service.

The aggregate number of rating triggers declined to 119 in 2007, from 131 in 2006, according to a report by Moody’s, New York

Triggers are contractual clauses that protect counterparties if their financial partners show financial weakening.

The report, “2007 Rating Trigger Trends in the U.S. Life (Re)Insurance Industry,” cites a relatively healthy operating environment in the first half of this year, says Laura Bazer, a Moody’s vice president and senior credit officer.

Bazer, however, does note that the results in the annual survey may be short-lived if the current subprime-driven credit market situation worsens. The reason is that triggers run in an ebb and flow that reflect current economic stress and corporate default rates in the economy, she explains in the report.