Ratings company A.M. Best has shown concern lately over marketplace happenings that may push them to downgrade some ratings. Due to the government’s arguing over the debt crisis and many weak European economies, the U.S. Life/Annuity sector may have its rating downgraded to negative from its current rating of stable. The Insurance Networking News article “Possible Revision to Rating Outlook for U.S. Life/Annuity Sector” explores the consequences of the ratings. Life insurance companies’ stability are being individually reviewed to see what happens to their risk-adjusted capitalization during times of economic stress. Some companies are more affected than others by the debt crisis and the falling European economies. Those companies who show a higher decline and those with a large amount of domestic and foreign sovereign credits may see their ratings decline.
The biggest stressors right now in the U.S. Life/Annuity sector are uncertainty in the global markets, higher volatility in the equity markets, a continuous weak real estate market, and unemployment coupled with low consumer confidence. Insurance companies are having a harder time increasing their revenues and earnings. Products like equity linked cds, fixed indexed annuities, and more are affected by the changing markets. While A.M. Best believes that raising the debt ceiling will help the financial markets’ stability in the short term, they think that other long term solutions are necessary. However, A.M. Best does acknowledge that many companies are being proactive to ensure their capital is protected, their portfolios are lower risk, and they are positioned for growth. If the annuity ratings outlook is downgraded, most insurers hope that their actions toward market protection will keep them positive.