INARM Message - FW: Moody's Research on Fiscal Cliff's Impact on Financial Institutions
Ingram, Dave
Includes their estimates of the impact on the insurance industry.
David Ingram, CERA, FRM, PRM
Willis Re, One World Financial Center, 200 Liberty Street, 3rd Floor, New York, 10281-1003, United States
Direct +1 212 915 8039
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From: Riegel, Robert [mailto:Robert...@moodys.com]
Sent: Thursday, December 20, 2012 5:35 PM
Subject: Moody's Research on Fiscal Cliff's Impact on Financial Institutions
Attached is a recently published Moody’s research piece on the potential impact of the fiscal cliff on US financial institutions. I hope you find the research informative. Please call or email with any comments or questions. Have a happy holiday season!
Regards,
Robert
Introduction
US fiscal policy poses significant risks to economic activity. The articles that follow provide our assessment of how various fiscal outcomes affect the credit quality of US financial institutions:
» Banks
» Fannie Mae and Freddie Mac
» Health insurers
» Life insurers
» Property and casualty insurers
» Asset managers
Current US law mandates substantial tax increases and government spending cuts totaling around 4.5% of GDP beginning in January – the “fiscal cliff.” The sudden fiscal discontinuity was caused by accident. The US Congress had previously extended tax rate decreases passed in 2001 and 2003 that now expire on 31 December 2012. Separately, in the context of the debt ceiling debate in August 2011, Congress mandated that across-the-board spending cuts begin on 1 January 2013 if the political parties could not agree on a more elegant solution to reduce US debt. No agreement has yet been reached, so the automatic spending cuts are on schedule to take effect.
Neither the US Democratic nor Republican political parties want the fiscal measures to take place next month. However, they have opposing views on how US debt should be reduced, with Republicans more in favor of reining in spending and Democrats more in favor of increasing tax revenue.
Unless addressed, the scale of fiscal policy tightening would result in the US falling back into recession early in 2013. Analysis by the Congressional Budget Office suggests that if all of the scheduled changes to tax and spending policies take effect in January 2013, US real GDP will fall by 0.5% over the four quarters to 2013 fourth quarter, and the unemployment rate will rise to 9.1% from the most recent rate of 7.7% in November.
If by sometime in 2013 the US does not adopt policies that lead to debt stabilization and ultimately reduction, the credit quality of the US will deteriorate. A weakening of the US government credit quality will, in turn, weaken the credit support certain financial institutions derive from the US government.
..................................................
Robert Riegel
Managing Director
Americas Insurance
212.553.4663 tel
917.299.4741 mobile
212.298.7097 fax
robert...@moodys.com
Moody’s Investors Service
7 World Trade Center at
250 Greenwich Street
New York, NY 10007
www.moodys.com
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