A.M Best agrees with the consensus view the deepest U.S. recession in decades is showing some signs of improvement.
“Credit spreads have narrowed considerably for most asset classes, especially corporate bonds, non-housing related asset-backed securities and agency mortgage-backed securities.”
However, the company is maintaining its negative rating outlook in a new report on the life/health industry, given its perspective on the credit cycle and the potential negative impact on life insurance companies’ asset portfolios. The company said its view reflects concern regarding the sustainability of the positive trends (i.e., the shape of the economic recovery), as well as the potential for volatile equity markets and headline investment risk within commercial real estate as the credit cycle unwinds.
A.M. Best believes economic growth is likely to be moderate and that it will be several years before the economy returns to “normal.” This belief is underpinned by the fact that unemployment is expected to remain at elevated levels; there is continued potential for further deterioration in financial institutions’ loan portfolios; and there is limited flexibility with respect to interest rates as they are at historical lows.