Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor

Life Health > Life Insurance

Moody's: Increase in capital rules is credit negative for U.S. life insurers

By Warren S. Hersch

X
Your article was successfully shared with the contacts you provided.

A major credit rating agency forecasts a negative outlook for U.S. life insurers.

Moody’s Investors Service labels the credit outlook for U.S. life insurers as “credit negative” in the Nov. 1 edition of “Credit Outlook,” a weekly publication covering credit implications of current events.

Underpinning the adverse rating, Moody’s states in the report, is an increase in the National Association of Insurance Commissioners’ capital requirements for U.S. life insurers. The change in capital requirements are driven by year-end NAIC assumptions respecting residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS).

Offsetting the benefits of the new capital requirements, the Moody’s report adds, are disincentives for insurers to invest in two of the better-yielding asset classes in a low-yield environment.

The NAIC’s preliminary estimate of the industry-wide effect for U.S. life insurers of the new weightings is for NAIC risk-based capital (RBC) to increase to 3.2 percent from 2.7 percent for RMBS and to 1.0 percent from 0.9 percent for CMBS.

“The higher capital requirements, which will affect insurers in their preparation of year-end 2012 statutory statements, are credit positive for the capital adequacy of the insurance industry,” Moody’s states in the report. “However, the additional capital requirements will increase the amount of capital for insurers to hold RMBS and CMBS relative to other investments.

“That increase may discourage insurers from maintaining existing holdings in these asset classes and from making future purchases,” the report adds.

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.