NU Online News Service, Aug. 10, 2:49 p.m. EST
Rating agency A.M. Best Co. says the deal reached in Washington to raise increase the U.S. debt ceiling does not get rid of uncertainty regarding the credit quality of U.S. government debt.
In a brief released by the company, A.M. Best says it considered a downgrade of the country's credit ratings during recent stress testing of insurers' financial strength. The agency says it actually pondered a more severe downgrade.
"The luster of U.S. Treasury securities as a virtually risk-free investment has been tarnished," regardless of the extent of the downgrade, A.M. Best says.
Yet the securities remain a part of insurers' portfolios, the agency continues, while "macroeconomic concerns that were part of A.M. Best's stress scenario loom as large as ever."
Less than 2 percent of property and casualty rating units might have seen ratings impacted as a result of the stress test performed last month, says A.M. Best.
P&C companies tell A.M. Best they do not plan to change investment strategies, but will add to capital by getting funds from parent companies and affiliates, raising equity and keeping earnings, A.M. Best says.
The agency says the rating outlook for the life and annuity sector of the industry is impacted more, especially as economic weakness continues. Last month A.M. Best considered changing its rating outlook from stable to negative and now the likelihood "remains elevated."
As much as 25 percent of life insurance rating units could have seen ratings impacted under the stress scenario.
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