Fitch to focus on liquidity

Fitch Ratings is focussing more on liquidity in its insurance industry ratings criteria in light of the global recession and capital market crisis.
Although Fitch has not changed its core ratings criteria, it has adjusted the focus and weighting of its analysis in several ways, it noted. Liquidity will be used as a primary factor to better address issues especially important to credit quality in the current environment, it said in its global insurance report.
“With capital markets and bank/private financing closed to a number of companies, and very expensive for those with access, the ability of even large “brand name” insurance companies to raise external funds to meet liquidity needs can no longer be assumed,” the report says.
“Accordingly, Fitch’s current analysis of liquidity is focused heavily on an insurer’s ability to meet potential liquidity calls primarily from internal sources, external capital already raised or pre-arranged, and committed credit lines.”
Areas of focus include, but are not limited to:
•    Near-term debt maturities and short-term debt rollovers;
•    Bank debt, including amounts outstanding and available;
•    Impact if banks are unable or unwilling to fund facility draw downs; and
•    Securities lending.
“Liquidity problems can result in what is commonly referred to as a ‘credit cliff,’ in that an otherwise strong company can experience a sudden and swift change in fortunes, including being able to pay all obligations with comfort one day and defaulting just a short time later.”