After downgrading U.S. government debt in Friday, ratings firm Standard & Poor’s also hit 10 insurers with downgrades on Monday, citing their exposure to, of all things, sovereign debt.
Despite the hullaballoo, the downgrades are likely to have little impact on the operations of U.S. P&C insurers, says Robert Hartwig, an economist and president of the Insurance Information Institute (I.I.I.). While the ultimate ramifications of action on the United States and global economy remain uncertain, the business model and conservative investment strategies of insurers should insulate the industry from immediate damage, he contends. “The nation’s property/casualty insurers have very limited direct exposure to the U.S. government bond market and have collectively set aside hundreds of billions of dollars to pay unanticipated claims,” Hartwig said “Both of these factors will enable the industry to operate effectively despite the recent downgrade of long-term U.S. bonds.”
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