When Standard and Poor’s Ratings Services (S&P) revised its outlook for the U.S. from ‘negative’ to ‘stable’ on Monday, it subsequently updated its outlook on six insurance groups.
The strength and alacrity with which the Federal Reserve has intervened during “economic shocks” and its stewardship under Chairman Ben Bernanke, coupled with an improved near-term deficit picture, prompted the ratings agency to rethink its outlook.
The insurance groups — like the U.S. itself — retained their ratings of ‘AA+,’ only their outlooks improved.
Using their recently revised methodology for rating insurers published on May 7 of this year, the outlooks to ‘stable’ from ‘negative’ include the following groups and their affected companies: Knights of Columbus; Massachusetts Mutual Life Insurance Co.; New York Life Insurance Co.; Northwestern Mutual Life Insurance Co. and Teachers Insurance & Annuity Association of America.
S&P has affirmed their ‘AA+’ rating with a ‘negative’ outlook for Guardian Life Insurance Co. of America and its subsidiaries. S&P is concerned that the forward looking view of management and their initiatives to improve diversification and manage expense efficiency may not come to fruition.
S&P warned of a possible lower rating for Western and Southern Life Insurance Co. if one or all of the following happen:
- A continued shift toward spread-based annuity products as measured by their percentage of total reserves;
- If a majority of their earnings are derived from annuities; or
- If their capitalization somehow drops to a level that no longer supports their risk profile.
Core subsidiaries of Berkshire Hathaway Inc. also remained ‘negative’ although S&P cautioned this was unrelated to its revised U.S. outlook. S&P’s ratings of Berkshire Hathaway were conducted under new methodology for insurers, published on May 16 of this year. A downgrade is possible if capital adequacy, according to S&P’s capital model, of Berkshire Hathaway’s insurance operations deteriorates as a result of an increased investment risk exposure or the funding of a large acquisition by the insurance companies.
S&P cautioned that Western and Southern was not assessed under the new methodology out on May 16, and “it remains under criteria observation.”