L/H Investments Show Mixed Signals
January 7, 2010 by N/A
OLDWICK, N.J.–(BUSINESS WIRE)– A.M. Best Co. has issued a special report outlining its views on the investment environment for U.S. life/health insurers titled, “Mixed Signals: Has the Economy Begun Its Recovery?” A.M. Best believes that, despite signs of economic recovery, financial institutions’ loan portfolios have yet to generate the full measure of expected losses, and that same potential holds true for U.S. life/health companies.
As we enter 2010, it appears the deepest U.S. recession in decades is showing some signs of improvement. A.M. Best accepts the consensus view of respected economists surveyed in a report from the National Association for Business Economics, which states the U.S. economic recovery has begun. Credit spreads have narrowed considerably for most asset classes, especially corporate bonds, non-housing related asset-backed securities and agency mortgage-backed securities.
However, even though some pressure on life insurers’ invested assets has alleviated, A.M. Best is maintaining its negative rating outlook on the life/health industry, given its perspective on the credit cycle and the potential negative impact on life insurance companies’ asset portfolios. A.M. Best’s view reflects concern regarding the sustainability of the positive trends (i.e., the shape of the economic recovery), as well as the potential for volatile equity markets and headline investment risk within commercial real estate as the credit cycle unwinds.
A.M. Best believes economic growth is likely to be moderate and that it will be several years before the economy returns to “normal.” This belief is underpinned by the fact that unemployment is expected to remain at elevated levels; there is continued potential for further deterioration in financial institutions’ loan portfolios; and there is limited flexibility with respect to interest rates as they are at historical lows.
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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
