(Bloomberg News) New York Life Insurance Co. and Northwestern Mutual Life Insurance Co., policyholder-owned carriers, may be stripped of their AAA credit grades at Standard & Poor's, which lowered the outlook for U.S. sovereign debt.
"The ratings on the U.S. insurers are constrained by the U.S. sovereign credit rating because their businesses and assets are highly concentrated in the U.S.," S&P said April 18 in a statement. The companies were among five AAA-rated insurers whose ratings outlooks were lowered to "negative" from "stable." The companies' AAA ratings were affirmed.
Insurance companies hold government bonds as investments and generally sell more policies when economic expansion gives their customers more money to plan for retirement and buy protection products. S&P put the U.S. government on notice that it risks losing its AAA rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt.
"We factor direct and indirect sovereign risks -- such as the impact of macroeconomic volatility, currency devaluation, asset impairment, and investment portfolio deterioration -- into our financial strength ratings," S&P said.
Knights of Columbus, Teachers Insurance and Annuity Association of America and USAA Life Insurance Co. also had their outlooks cut to negative by S&P.
"The change in outlook was not in response to any new initiatives of the insurers, rather S&P tells us that no financial institution can carry a higher rating or outlook than its sovereign," William Werfelman, a spokesman for New York Life, said in an e-mailed statement. "We believe our diversified $165 billion portfolio of cash and invested assets continues to be of outstanding quality."