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05-01-2012, 11:56 AM #1
Moody's reviews LIC for possible downgrade
Global agency Moody's on Monday said it is reviewing rating of state-owned LIC for a possible downgrade over its huge exposure to government bonds.
"Moody's has placed the insurance financial strength rating of Life Insurance Corporation of India (LIC) (Baa2/ stable) under review for possible downgrade," Moody's Investors Service said in a statement.
It said that the credit quality of financial institutions, with high levels of domestic sovereign debt holdings, and low geographically diversified revenue and earnings sources, is closely linked to the sovereign's credit strength.
"Issuers with these characteristics are unlikely to have standalone credit assessments above the sovereign," Moody's Investors Service added.
LIC enjoys Moody's Baa2 rating with a stable outlook, which is higher than the agency's Baa3 sovereign rating for India. Baa3 represents the lowest investment grade rating.
The review of LIC, the statement said, reflects Moody's revised assessment of the linkage between the credit profiles of sovereigns and financial institutions globally.
"Moody's says that the review for downgrade reflects LIC's direct exposure to the Indian sovereign risk in terms of its investment portfolio and business profile," it added.
As of 31 December 2011, government securities and government guaranteed bonds represented 54 per cent (Rs 6 lakh crore, or about $111 billion) of the insurer's total cash and invested assets.