U.S. life insurance companies have about US$57 billion in exposure to European financial institutions and sovereigns, but the credit impact of that will be modest, says Moody’s Investors Service in a new special comment.
The rating agency’s report analyzes U.S. life insurer holdings within the European Union and calculates their total exposure to be US$57 billion at year-end 2011, which represents approximately 20% of the industry’s statutory capital. And, it says the exposure is concentrated in a few firms.
However, it notes that the industry’s exposure to the more challenged peripheral Euro area countries is limited and declining. A large part of the European holdings comprise higher quality financial institutions and sovereigns with more robust economies, it says. “That will protect the industry somewhat even if economic conditions drastically deteriorate in Europe,” says the report.
“The credit impact from the declining macroeconomic situation in Europe will be modest for US life insurers,” said Shachar Gonen, a Moody’s assistant vice president and analyst. “Moody’s estimates that a pre-tax loss for the Moody’s-rated US life insurance industry in a severe stress scenario is in the range of US$2.1 billion, representing less than 1% of year-end statutory capital.”