Standard & Poor’s Ratings Services is placing the credit ratings of the United States of America on CreditWatch with negative implications, and a smaller rating agency – Weiss Ratings – has cut its rating on U.S. government debt to C minus, from C.
The Obama administration has been trying to persuade Congress to lift a statutory limit on the U.S. government’s ability to borrow. The government reached the limit May 16, but it has been taking steps such as suspending issuance of State and Local Government Series Treasury securities to extend its ability to keep making payments.
The government now is extending its ability to operate until Aug. 2 by suspending reinvestment of the Exchange Stabilization Fund, according to the U.S. Treasury Department. The suspension of fund reinvestments is the last major tool the government has available to keep under the statutory debt limit, officials say.
Moody’s Investors Service, New York, announced Wednesday that it was placing the U.S. government’s Aaa rating on review for a possible downgrade.
Now S&P, New York, says it has put the AAA long-term and A-1 plus short-term sovereign credit ratings on the U.S. government “on CreditWatch with negative implications.”
“As a result, we are placing the long-term counterparty credit and financial strength ratings and related issue ratings on all AAA rated U.S. insurance groups on CreditWatch with negative implications,” S&P says. “We view the long-term ratings on the U.S. insurers to be constrained by the U.S. sovereign credit rating because their businesses and assets are highly concentrated in the U.S.”
The short-term ratings on the insurance companies remain unchanged, S&P says.
The U.S. life groups with AAA ratings from S&P are Knights of Columbus, New Haven, Conn.; New York Life Insurance Company, New York; Northwestern Mutual Life Insurance Company, Milwaukee; and Teachers Insurance & Annuity Association of America, New York.
U.S. Treasury and federal agency securities represent about 60% to 200% of total adjusted capital at the AAA-rated insurance groups, S&P says.
“However, in the unexpected event of a U.S. default, we would expect these insurers’ losses, if any, to be modest and manageable relative to capital,” S&P says.
Each of the AAA insurance groups has a very strong business, very strong capital and very strong liquidity, S&P says.
The companies also have strong retail insurance relationships, and the kinds of products they sell seem to be less vulnerable to surrenders or withdrawals than institutional products might be, S&P says.
S&P is placing the U.S. sovereign ratings on CreditWatch because there seems to be at least a 50%