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Credit slide smacks insurers

By Jay MacDonald ·
Friday, August 12, 2011
Posted: 9 am ET

The Standard & Poor's downgrade of the U.S. credit rating resulted in a similar slap for 10 U.S. insurance companies that back their life insurance, disability insurance and retirement products with strong holdings in Uncle Sam.

The ratings agency lowered from AAA to AA+ the long-term credit and financial strength ratings on five U.S. insurers: Knights of Columbus, New York Life, Northwestern Mutual, Teachers Insurance and Annuity Association of America (TIAA) and United Services Automobile Association (USAA). S&P set the outlook on future ratings of these companies at negative.

While S&P affirmed its AA+ ratings on Assured Guaranty, Berkshire Hathaway, Guardian, Massachusetts Mutual and Western & Southern, it revised its outlook on ratings for these companies from stable to negative.

S&P said that while the companies maintain "very strong capital and liquidity," their significant holdings in U.S. Treasury and agency securities forced the move in light of the U.S. credit downgrade. It noted that the affinity relationships of Knights of Columbus, TIAA and USAA exposed them to additional risk from the U.S. rating downgrade.

Susan E. Voss, president of the National Association of Insurance Commissioners, or NAIC, was quick to quell public fears that might arise from the S&P actions.

"There is no impact on insurer investments in U.S. government and government-related securities from the actions recently taken by the rating agencies. Risk-based capital and asset valuation reserves are unaffected. State insurance regulators and the NAIC will consider changes to our regulatory treatment if it becomes necessary in the future," Voss said in a statement.

Northwestern Mutual president Mark Lucius said the downgrade was not unexpected. "It is entirely due to S&P's belief that financial firms like Northwestern Mutual can't have better strength ratings than the U. S. government," he said in a statement.

As a parting kick no doubt shared by the other nine affected companies -- and likely Ben Bernanke and President Barack Obama as well -- Lucius added: "We are the same exceptionally strong company today as we were yesterday. We continue to have AAA, best possible ratings from Moody's, Fitch and A.M. Best."

In theory at least, lower ratings adversely affect a company's borrowing costs.

Are you worried that the S&P downgrade could result in an increase in life insurance, disability insurance or retirement management rates?

Or is it just a lot of dinosaur dancing with little or no significance for the rest of us?

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Well Informed
September 13, 2011 at 7:04 pm

This post forgets to mention the real reason the S&P ratings were lowered on the 3 strongest insurance companies in the world: New York Life, TIAA-CREF and Northwestern Mutual. The S&P has a clause that states that "no financial institution can have a higher rating than that of it's sovereign." In layman's terms, the financial strength of these companies didn't change at all, their ratings were lowered because of a technicality. If you are going to write something that has potential to cause anyone to worry about their investments and insurance with any of these companies, I would think you would at least know what the hell you are talking about. Very irresponsible.

Jay MacDonald
August 15, 2011 at 5:49 pm

Hi, Chris: Not sure I "slammed" TIAA for having the good sense to invest in the U.S.A. Please take a moment to re-read my blog. Cheers, Jay

August 14, 2011 at 6:35 pm

You need to youracttogether. In one article above you have non-experts advise people to checkout TIAA for their policies, then in yournext breath you slam TIAA for being downgraded. You should stayaway from subjects you have no credibility in and offer only negative opinion.