Tags: Insurers | May | Lose | 4 Billion | Muni-Bond | Holdings

Moody's: Insurers May Lose $4 Billion on Muni-Bond Holdings

Monday, 22 Nov 2010 02:34 PM

U.S. property and casualty insurers, a group that includes Allstate Corp. and American International Group Inc., may lose as much as $4 billion from holdings in municipal bonds, Moody’s Investors Service said.

Losses of $2 billion to $4 billion wouldn’t be catastrophic, the ratings firm said in a statement today. Insurers hold $370 billion of municipal bonds, or about 27 percent of the industry’s invested assets, which may generate more than $10 billion in annual returns, Moody’s said.

“While recognizing that public finance in the United States is under strain, we nevertheless view P&C insurers’ muni bond exposure as manageable,” Moody’s Vice President Paul Bauer wrote in the statement. Municipal credit quality is likely to remain “generally resilient even through a period of economic stress,” according to the statement.

Municipal bonds have lost favor as state and local governments face a record $18.5 billion in budget deficits this year, according to a National Governors Association survey. States, seeking to cover jobless benefits, have borrowed $41 billion from the federal government, which has been providing cash without charging interest under the economic stimulus plan enacted after President Barack Obama took office.

“Under a baseline scenario, which assumes a slow and gradual economic recovery, we expect very minimal credit losses, given the high credit quality of the sector,” Bauer said.

Muni Market

Property casualty insurers own about 13 percent of the $2.8 trillion U.S. municipal bond market, Moody’s said. About three-quarters of the municipal investments of insurers rated by Moody’s are rated Aa or Aaa, the highest rating possible, and the average rating of the securities is Aa2.

Insurers could recover some losses from municipal bond defaults as investors are more likely to be repaid by state and local governments than corporations.

“The loss estimate partially reflects our expectations that there would be lower loss severity for muni bonds but doesn’t give full credit for that dynamic,” Bauer said in an interview. “There could be credit losses, but given the total size of the portfolio and offsetting investment income we think it would be minimal.”

© Copyright 2017 Bloomberg News. All rights reserved.

 
1Like our page
2Share
StreetTalk
U.S. property and casualty insurers, a group that includes Allstate Corp. and American International Group Inc., may lose as much as $4 billion from holdings in municipal bonds, Moody s Investors Service said. Losses of $2 billion to $4 billion wouldn t be catastrophic,...
Insurers,May,Lose,4 Billion,Muni-Bond,Holdings
343
2010-34-22
Monday, 22 Nov 2010 02:34 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved