C "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"> A Ray of Good News : California Insurance Law Observer

A Ray of Good News

We all need a piece of good news in the midst of the financial markets' gloom.

It should therefore be welcome information that the California Insurance Commissioner,
Dave Jones, issued a press release today that puts Standard & Poor's downgrade of "certain insurers" credit ratings into context.

S&P downgraded many insurance companies' credit ratings from AAA to AA++, just as it did
to U S Government securities and for the same reason: because the insurers had "significant
investments" in U S securities, and S&P thought that their ratings should not be higher than
those whose securities they had invested in.

But, said Commissioner Jones, the rating actions have no impact on the actual holdings of such
securities by insurance companies and thus have "no impact on insurers' financial reporting of
risk-based capital and asset valuation reserves."  Thus, and most meaningful for policyholders
who look to their insurers to hold them harmless of covered claims, the downgrade "has no impact
on insurers' claims paying abilities."

Commissioner Jones got it right.  The assets held by insurance companies as part of their reserves for payment of claims are no less sound because of the downgrades; and the California Insurance Commissioner, like his counterparts in other states, is charged with diligent oversight of those reserves and of the assets which make them up.  The Commissioner has promised that his department "will  continue  to exercise strong financial oversight and carefully monitor the financial condition of insurers." That is reassuring news at a time when it seems that the markets are reacting to panic and rumor.

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