The New York ratings agency Moody's Investors Service has revised its life insurance liquidity model in a way it said will help solidify its industry ratings.
But Scott Robinson, a vice president and senior life insurance analyst at Moody's, said the model changes do not alter any of its current ratings. "They didn't make a big difference in the liquidity ratings of the industry either," he said. "But it gives us a little more information, and that's a positive."
Among the changes, Mr. Robinson said, is one that gives Moody's a better idea of an insurer's putable funding agreements. Generally, a putable funding agreement is for 30 days to one year, he said.
Moody's used to estimate an average duration for a company's putable agreements, but now it is getting the specific duration for each one.
"In a putable agreement, the holder of the note can put back the note and demand the funds held, within a certain period," Mr. Robinson said. "Before, we were estimating the length of these agreements. Now, we are getting more specific."
The concern about putable agreements is whether an insurer has enough liquid assets to pay back a note if it is called, he said. However, he said, generally a call is not made unless there is a problem.
"But we still want to see that they have enough liquid assets, in case," Mr. Robinson said. "We're refining a red flag; that is all."
Mr. Robinson said a couple of major insurance companies have putable options, but he declined to name them. "They have the liquidity to handle it," he added. "We're more worried about some of the smaller insurers that have them."
Martha Butler, a senior director of insurance in Fitch Inc.'s Chicago office, said it, too, asks specifically about the durations of insurance companies' putable options. American International Group, Aegon, Allstate, ING, John Hancock, MetLife, New York Life, and Principal are among the big companies that have putable options in investors' hands, she said, but all of them have plenty of liquid assets to cover them.
The total putable market in the insurance industry is about $100 billion, Ms. Butler said.
"It's something investors have to watch," she said. "For instance, this is what got General American in trouble back in 2000. They had short-term, putable agreements, and they didn't have the liquid assets to cover them, and they basically went under and ended up being bought out by MetLife because of it."
Other changes in the life insurance liquidity model at Moody's included more information on insurers' collateralized mortgage obligations and the inclusion of data on payables and receivables related to securities bought and sold.
