Ratings Roundup

Ratings agencies during the week of April 5 issued several ratings announcements on insurers as well as reports detailing trends for mortgage insurers, the effect of TARP on life insurers and the impact of the corporate default rate on insurers.
Among the companies reviewed are:
--ING Life Insurance Co., Ltd(ING Life Japan), which had its Standard & Poor’s Corp. ‘A+’ financial strength and counterparty credit ratings put on CreditWatch with negative implications it parents announcement that its life insurance activities are under review and reflecting “growing uncertainties” about the unit’s status within ING Groep.
--Northwestern Mutual Life Ins. Co. and Northwestern Long Term Care Ins. Co., which had it insurance financial strength rating affirmed at ‘Aaa’ by Moody’s Investors Service with a ‘stable’ outlook. Moody’s affirmed the ratings citing “the company’s exceptional franchise in individual life insurance, which is demonstrated by its excellent persistency, mortality and expense management, as well as its solid capitalization.” However, Moody’s did express some concern over NWM’s “relatively large concentration in direct commercial mortgage loans” in a time when there is an economic downturn.
--Torchmark Corp. had its ‘Baa1’ senior debt rating affirmed by Moody’s but its rating outlook assigned ‘negative’ down from ‘stable’. Its two life units, Liberty National Life Ins. Co. and United Investors Life Ins. Co. had their respective ‘A1’ and ‘A3’ insurance financial strength ratings affirmed but with a negative outlook. The rating agency cited “strong earnings capacity” and its “very stable liability profile, and good, resilient capital adequacy.” However, Moody’s also cited the expectation of higher credit related investment losses, as well as tighter liquidity in the current stressful economic environment.

Among the issues the ratings agencies tackled this week were:
--Corporate Credit Quality and Credit Default Rates by Moody’s. The global credit quality for corporate issuers had a downgrade rate of 13.8% in the first quarter of 2009 compared with 10.2% in 2006 and a 12.5% rate from 1983-2009, Moody’s stated. The upgrade rate for first quarter 2009 was 0.5% compared with 7.9% from 1983-2009, it adds. Global speculative grade defaults finished first quarter 2009 at 7% up from 4.1% at the end of 2008. A year ago the global default rate stood at 1.5%. Moody’s is predicting that the global default rate will rise to 14.6% in fourth quarter 2009 and will remain at an elevated 11.7% a year from now.
--Global Financial Turbulence’s Impact on Property Casualty Insurers will make it hard for the property-casualty industry to achieve rapid growth, according to S&P. The reason, according to S&P, is that policyholders may reduce coverage and increase retention to reduce premiums.
--U.S. Mortgage Insurers Were Downgraded by S&P in a move in which the “uncertainty” in today’s economy was cited as a major consideration. In fact, during a teleconference, S&P said that the uncertainty is great enough to create a wide range of potential losses for the industry ranging from $34-54 billion. In fact, the uncertainty surrounding mortgage performance while leading to an expectation of weaker operating results for 2009-2011 for mortgage insurers, could turn around and result in strong 2011 operating results. During the teleconference, analysts were asked if TARP was incorporated into the ratings decisions. S&P said that because there was no clear indication that TARP would be applied to mortgage insurers, it was not. And, if it was applied, then it is not clear if there would be capital injections, guarantees or reinsurance used to provide assistance to companies. However, if the program does become available to mortgage insurers and there is clarity on how it will be used, it would be a factor in ratings, S&P said.
--TARP Capital Purchase Program Could Give Life Insurers A Boost according to S&P. Participation in the program could bolster liquidity and capital at a time when they are really needed by companies, the rating agency says in an article. While upgrades are not expected if the relief comes through, some companies could receive a ‘stable’ rather than a ‘negative’ outlook, according to S&P.