Moody's to eye insurance companies' recapitalization efforts

As some insurers recently made stock and debt offerings in lieu of participating in the government’s Troubled Asset Relief Program, Moody’s Investors Service said that it will review the way these recapitalization options affect carriers’ ratings.
JUN 02, 2009
As some insurers recently made stock and debt offerings in lieu of participating in the government’s Troubled Asset Relief Program, Moody’s Investors Service said that it will review the way these recapitalization options affect carriers’ ratings. Three of the six insurance companies offered participation in TARP have already declined. They are Allstate Corp. of Northbrook, Ill., Ameriprise Financial Inc. of Minneapolis and Prudential Financial Inc. of Newark, N.J. Three others — Hartford (Conn.) Financial Services Group Inc., Lincoln National Corp. of Radnor, Pa., and Principal Financial Group of Des Moines, Iowa — are still reviewing their options. Although many carriers have tried to strengthen their credit profiles by cutting back on riskier business segments and raising cash reserves, they have also tried to increase their capital and liquidity buffers by issuing debt, equity and hybrid securities in the capital markets, Moody’s noted in a report. The capital markets were less of an option at the height of last fall’s economic strife, but as the market climate has improved, a number of carriers have been able to announce offerings. They include Principal Financial and Prudential Financial. Aflac Inc. in Columbus, Ga., reportedly considered that possibility as well via a share offering, but the idea was placed on the back burner last week, according to published reports. TARP-like hybrid securities, as well as traditional market-placed debt or equity or cash raised at a viable cost could help carriers’ financial flexibility at this time. New York-based Moody’s said that when assessing ratings, it would consider the purposes for which the capital raised will be used. For instance, will it be kept at the holding-company level for a liquidity cushion or added to operating companies to raise their capital? In the former situation, the funding would be considered operating leverage, while under the latter scenario, Moody’s would consider the capital to be financial leverage. Nevertheless, continuing credit concerns about carriers’ profitability and risk management will still remain even after an increase in capital, the agency said.

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