A report from Moody's Investors Service reiterates that the rating agency’s expectations of the likelihood of government support for insurers remain unchanged, despite the global financial crisis and the government support afforded to some companies, and that its ratings will continue to emphasize intrinsic financial strength.
"Moody's Insurance Ratings Emphasize Intrinsic Financial Strength; No General Presumption of Government Support" details Moody's approach to evaluating the likelihood of government support for insurers and in particular reviewing the experience of the last few years. It also covers the instances in which government support has been provided to various insurers during the global financial crisis, and concludes that it was motivated in such instances by concerns which went beyond those centered on the industry.
"Moody's recognizes that authorities worldwide may elect to provide assistance to stressed insurers in a limited number of situations, but we do not consider it as sufficiently likely or reliable to support a general presumption of government support in our insurance ratings," says Sally Yim, a Moody's VP and senior analyst, and author of the report.
Moody's recognizes that governments may elect to provide support to stressed insurers in certain situations. But, while some insurance groups did receive governmental support during the recent crisis, it was provided in the context of extreme sensitivity to any financial shocks that could pose a threat to financial stability and was often extended to address weaknesses in non-insurance businesses, the rating agency says.
Furthermore, in a number of cases, those insurers who could have benefited greatly from government support did not receive it.
"Moody's approach, then, is generally to rate insurance companies under the presumption that their governments would not provide direct support in the event that an insurer became troubled, and even if that insurer maintains a large share of its market," Yim says. "In cases where the government has provided long-term support through a substantial ownership position, Moody's would, however, consider the insurer as a Government-Related Issuer (GRI) and factor in the prospect for government support according to our published GRI methodology."
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