Run a Google search these days for “insurance company ratings downgrade” and you’ll come up with page after page of companies losing ground, from Aegon to ING to Principal Financial to Sun Life. Losing access to various forms of borrowing and finding themselves suddenly in worse shape than they were, numerous companies are seeing their ratings fall at the hands of Fitch, A.M. Best, Moody’s, and S&P.
The big headline-grabbers at the moment, of course, are Genworth (see last month’s column), Prudential, and AIG. That last may face bankruptcy or breakup before all is said and done, although so far there appears to be little interest in deals for many of the company’s business units such as its American Life Insurance unit and AIG Advisor Group, its broker/dealer operation. Would-be buyers can’t get financial backing to complete the deals that might otherwise be made. AIG is now so deeply in trouble that some analysts have ceased to offer opinions on the company’s long-term (or even short-term) outlook.
But life insurance isn’t the only field in trouble; property/casualty insurer CNA was also hit with downgrades from both Fitch and A.M. Best. While there’s more pressure on the life insurance industry than on such businesses as property/casualty, according to Douglas Meyer, managing director and insurance analyst at Fitch Ratings, CNA’s outlook is now negative, based not only on investment losses, but also on declining net investment income because of investment losses in limited partnerships. CNA experienced a net loss in the fourth quarter of 2008, and since it has significant holdings in mortgage-backed and asset-backed securities, more rough times seem to lie ahead.
Prudential Financial has also gotten smacked. Citing Prudential’s “exposure to the volatile credit and investment market conditions, which are negatively impacting its investment results, earnings performance and capital level,” Fitch dropped Prudential’s parent company by two notches. High debt levels at the parent holding company level are also cited as cause for concern.