Life Insurers Could Lose High Ratings if U.S. Defaults

A number of life insurance companies could lose their high ratings if the U.S. defaults on its debt, Standard & Poor’s warned recently. The credit rating agency has notified top insurers that their ratings are tied to U.S. ratings and therefore, could suffer if the U.S. defaults.

Insurance Companies Could Lose AAA Ratings

In an effort to push lawmakers to resolve a nine-week long debate that will ultimately result in a debt plan meant to ensure the United States avoids default after reaching the $14.3 trillion debt ceiling on May 16, credit rating agency Standard & Poor’s has announced the latest casualties of default will be life insurance companies.

According to the agency, companies’ ratings could drop because they are directly related to the rating of the United States.

S&P and Moody’s have threatened to lower the nation’s AAA rating if lawmakers can’t find a way to avoid default by the deadline of Aug. 2. Unfortunately, life insurers will be in danger of the same rating decline because they are tied to the U.S. sovereign credit rating. In other words, the companies’ ratings cannot be higher than those of the U.S.

Companies Affected by Ratings Issue

A number of life insurance companies are affected by the S&P warning. The companies that could see their credit ratings drop include USAA, New York Life Insurance Co., Knights of Columbus, Northwestern Mutual Life Insurance Co. and Teachers Insurance & Annuity Association of America.

The assumption is that these companies’ ratings will drop to AA if the U.S. rating does, too.

Some companies have responded to the news by noting a potential rating drop should not impact the way they’re viewed by the public. USAA spokesman Paul Berry said in an to San Antonio Express-News that “This has no impact on USAA’s business model, financial performance or ability to make good on its commitment to members.”

New York Life spokesman William Werfelman told the newspaper that its rating should not be affected by the government’s actions. He noted in an email that the company’s portfolio of cash and investments “fully justifies our continued triple-A ratings.”