Five Life Insurance Companies Lose Their AAA Status
New York Life Insurance Company, USAA Life Insurance Company, Knights of Columbus, and Teachers Insurance and Annuity Association of America are the other four companies affected by the downgrade. In addition to the credit rating change from AAA to AA+ status, Standard and Poor’s also assigned negative outlooks to this five insurance companies. This means they may receive another downgrade in the near future.
Standard and Poor’s lowering of the credit grade results from the lowered outlook for United States sovereign debt. According to an S&P statement in April 2011, the ratings on these five insurance companies are constrained by the credit rating of their sovereign, the United States government.
With assets primarily in the United States, these insurance companies typically hold government bonds as investments, selling more policies during times of economic expansion. In light of the current economic situation, S&P warned the Unites States government of the possibility of this ratings change, unless federal legislators agree on a plan by 2013 to reduce the national debt.
Spokespersons for Northwestern Mutual and New York Life were quick to clarify that the downgrade was not in response to new company initiatives, a change in financial fundamentals, or a lack of company strength. They explain that S&P cannot rate a financial institution or insurance company higher that its sovereign — in this case, the United States federal government.
Despite the S&P downgrade, Northwestern Mutual, New York Life, and the other insurance companies retain their AAA ratings from Moody’s Investor Service, Fitch Ratings, and A.M. Best. They assure policy-holders that their diversified portfolios of cash and investments assets continue to be of outstanding quality. Although they lost their AAA status, “There still is no…insurance company that the rating agencies rate more highly than Northwestern Mutual,” a spokesperson for the company said.
Source : annuitynewsjournal