S&P; Lowers Ratings of Five More Insurers
In a second wave of insurance downgrades, Standard & Poor’s on Thursday lowered the ratings of five more insurers to reflect the economy’s persistent weakness.
The ratings agency cited growing economic risks to insurance companies but warned that the risks were “far from solvency-threatening” and said the industry was basically healthy.
The downgraded firms were Aetna Life & Casualty Co., Home Life Insurance Co., Lincoln National Life Insurance Co., Pacific Mutual Life Insurance Co. and Phoenix Mutual Life Insurance Co.
None of the total nine downgrades in the past two weeks has lowered ratings below investment grade. The downgrades are part of a speeded-up evaluation of the industry in light of increased perceived risk to certain assets, notably real estate investments and junk bond holdings.
Analysts said S&P;’s cautiously worded announcement reflects pressure from investors demanding earlier warnings of company problems, as well as from insurers afraid of stirring panic among policyholders.
Major insurance companies in California, New Jersey and New York were seized by state regulators this year after large numbers of policyholders ran to cash in their policies.
The downgraded companies have said the ratings changes do not signal a deterioration of their financial condition but merely a change in S&P;’s methodology for figuring debt ratings.
Lincoln National Life said it was perplexed by the downgrade because the company is “significantly stronger” than it was two years ago and has improved its finances since S&P; affirmed its pre-downgrade rating earlier this year.
“It’s kind of a yes-no situation,” said one analyst, John Kleiman, a vice president with Conning & Co. in Hartford, Conn. “Their financial condition today relative to a year ago might be very similar. But ratings agencies are saying, ‘Given the economy, we are very concerned about some of the assets the insurers are holding.’ ”
Many life insurers have suffered from falling real estate values and risky investments that have weighed heavily on their portfolios.
Lower debt ratings could make it more expensive for the companies to raise funds in the bond or stock markets.
S&P; said some life insurers will have to boost their reserves to cover anticipated losses on commercial mortgages, real estate and fixed-income investments.
