Ratings for these U.S. insurers and the broader sector could face pressure if U.S. fiscal and governance deterioration contributes to a negative scenario of heightened capital market volatility and/or a more severe economic downturn
The ‘AAA’ Insurer Financial Strength (IFS) ratings of New York Life Insurance Company, Northwestern Mutual Life Insurance Co. and Teachers Insurance and Annuity Association of America are neither directly nor indirectly linked to government support and are not capped at the rating of the U.S. government, said Fitch, that has downgraded the US government’s credit rating following concerns over the state of the country’s finances and its debt burden.
Fitch, one of three major independent agencies that assess creditworthiness, cut the rating from the top level of AAA to a notch lower at AA+ on Wednesday,
Fitch said it had noted a “steady deterioration” in governance over the last 20 years.
The rating outlooks for all three groups of companies remain stable, reflecting their strong levels of capital, liquidity, and franchise value independent of government support. Each group’s ratings and outlooks remain intact despite the U.S. sovereign downgrade.
The three ‘AAA’ companies can maintain IFS ratings up to two notches above the sovereign given their diversified investment portfolios and franchise strength. We expect any potential market volatility resulting from the downgrade to be short-lived and have limited impact on companies’ investment portfolios and capital.
The U.S. life sector will maintain its existing six-notch Industry Profile and Operating Environment (IPOE) range of ‘a-‘ through ‘aa+’ following the downgrade of the U.S. sovereign rating. The IPOE range drives and frames Fitch’s analysis of life insurers’ company profiles, a key rating driver in Fitch’s criteria.
Ratings for these U.S. insurers and the broader sector could face pressure if U.S. fiscal and governance deterioration contributes to a negative scenario of heightened capital market volatility and/or a more severe economic downturn.
In a highly unlikely U.S. default scenario, IFS ratings would be pressured given the linkages of these companies’ businesses and assets to the sovereign.
“We expect tighter credit conditions, a weakening in business investment and a slowdown in consumption to push the U.S. economy into a mild recession in 4Q23 and 1Q24, with U.S. annual real GDP growth slowing to 1.2% this year from 2.1% in 2022 and overall growth of just 0.5% in 2024,” said Fitch.