Moody’s Lowers Credit Ratings on 6 Big Insurers : * Insurance: The move, which could make it more expensive for the firms to raise capital, reflects the agency’s concern over their real estate investments.
The bad news continued Friday for the insurance industry as Moody’s Investors Service lowered its credit ratings on six prominent life insurance companies because of their investments in troubled commercial real estate.
The New York-based credit rating agency downgraded John Hancock Mutual Life Insurance Co. of Boston; Massachusetts Mutual Life Insurance Co. of Springfield, Mass.; Mutual Life Insurance Co. of New York; New England Mutual Life Insurance Co. of Boston; Principal Mutual Life Insurance Co. of Iowa, and Traveler’s Insurance Co. of Hartford, Conn.
The downgrades did not push the ratings below investment grade quality, but the move could make it more expensive for them to raise money on Wall Street because it could lead them to pay higher levels of interest on bonds and certain types of stock.
In announcing the downgrades, Moody’s cited “the ongoing deterioration of commercial real estate values, which will increase under-performing real estate loans and investments.” The rating agency also said that the companies’ earnings will be under pressure and that capital formation will be slow at those companies with significant real estate exposure.
The downgrades follow the seizure Monday of Mutual Benefit Life Insurance Co. by New Jersey regulators and the failures earlier this year of the life insurance subsidiaries of First Executive Corp. and First Capital Holdings Corp.
Earlier this year, state insurance regulators seized Executive Life of California; Executive Life of New York; Monarch Life in Massachusetts; and First Capital Life of San Diego and its Virginia affiliate, Fidelity Bankers Life Insurance.
Despite the downgrades, Moody’s analyst Manfred Nowacki said the ratings agency doesn’t “see the real estate issue being devastating to the insurance industry.” Real estate losses will affect earnings and the companies’ capital levels, but “I don’t think the real estate issue is going to be a solvency issue,” said Nowacki, an assistant vice president at Moody’s.
“For the most part, the companies remain very strong,” he said. “In general, they have diversified portfolios of high quality. It’s just that the downturn in the real estate market is a lot more severe than the recent cycles that we’ve seen.”
The company hardest hit by the downgrades was Mutual Life Insurance, whose rating was lowered to the high end of the “adequate” category from a rating of “good.”
“Relative to the company’s capital, they do have a significant exposure to mortgages and real estate combined,” Nowacki said.
The other companies, except Traveler’s, saw their ratings drop to the lower end of the “excellent” financial strength category.
Traveler’s rating was lowered a notch in the “good” range of financial strength.
G. David Hurd, chairman of the Principal Financial Group, the Des Moines-based parent of Principal Mutual Life, said the slight downgrade of the Principal from “exceptional” to the highest level of “excellent” reflects an overreaction by the rating service.
