S&P has also lowered its counterparty credit ratings on seven U.S. life insurance holding companies. In addition, the ratings of two groups of U.S. life insurers, one of which was also downgraded, have been placed on CreditWatch with negative implications.
The rating actions primarily reflect the incorporation of a new incremental asset stress analysis that S&P is now applying to U.S. insurers’ bond holdings, commercial mortgages and commercial-backed securities when the agency assesses the companies’ capital adequacy. The stress analysis is being used in response to the extreme pressures in the global economy, according to S&P.
The rating actions also reflect the effects of severe equity market declines and volatility on earnings and capital adequacy. S&P points out that the market dislocations are mostly hampering two areas that it views as especially important to financial flexibility: liquidity and access to the capital markets.
“We expect that the effect of these factors will challenge life companies’ competitive strengths and ability to generate profitable business,” S&P wrote in a note.
Despite the decline in the overall creditworthiness of the U.S. life insurance sector, S&P maintains that the credit fundamentals for the industry remain strong. It believes the sector remains well capitalized, maintains solid businesses, produces strong earnings and maintains strong liquidity.
Among the companies that S&P took actions on include:
