U.S. life insurers have moderate exposure to European financial institutions and sovereigns, but the credit impact will be modest, says Moody’s Investors Service in a new special report, “U.S. Life Insurers Have Moderate Exposure to European Financial Institutions and Sovereigns; Credit Risk Modest Relative to Capital.”
The report analyzes U.S. life insurer holdings domiciled within the 27 European Union countries.
Moody’s-rated U.S. life insurers had a total exposure of $57 billion at year-end 2011, approximately 20 percent of the industry’s statutory capital, says Moody’s. The industry’s exposure to the more challenged peripheral Euro area countries is limited and declining.
Moody’s notes that a large part of the European holdings comprise higher quality financial institutions and sovereigns with more robust economies. That will protect the industry somewhat even if economic conditions drastically deteriorate in Europe, according to the report.
Still, this exposure is concentrated among a few insurers, with the 10 holding the largest dollar amount representing 75 percent of the industry’s total holdings, says Moody’s.
“The credit impact from the declining macroeconomic situation in Europe will be modest for U.S. life insurers,” says Shachar Gonen, a Moody’s assistant vice president—analyst and author of the report. “Moody’s estimates that a pre-tax loss for the Moody’s-rated U.S. life insurance industry in a severe stress scenario is in the range of $2.1 billion, representing less than 1 percent of year-end statutory capital.”