Rating triggers in financial and insurance contracts were down 9% in 2007 compared with 2006, reducing incremental risk for both life insurers and, in particular, reinsurers, according to a report issued by Moody’s Investors Service, New York.
The aggregate number of rating triggers declined to 119 in Moody’s 2007 survey down from 131 in 2006.
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 2007, according Laura Bazer, a Moody’s vice president–senior credit officer.
However, Bazer does note that the results in the annual survey may be short-lived if the current subprime-driven credit market situation worsens. The reason, she explains in the report, is that triggers run in an ebb and flow that reflect current economic stress and corporate default rates in the economy.
Triggers are contractual clauses that provide counterparties protection if their financial partners show financial deterioration.