Moody's downgrades LIC, outlook stable

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SME Times News Bureau | 15 May, 2012
Credit ratings agency Moody's Investors Service Monday downgraded the state-run Life Insurance Corporation of India (LIC) to the lowest investment grade, in line with the sovereign ratings, due to the firm's high exposure to government debt.

Moody's lowered LIC's foreign currency insurance financial strength rating to Baa3 from Baa2. This is the lowest investment grade ratings also assigned on India's long-term sovereign debt.

Rating outlook of LIC is now stable, Moody's said in a report.

"The downgrade of LIC's rating reflects Moody's assessment that its creditworthiness is highly correlated with that of the Indian government's credit strength," the ratings agency said in the report.

It pointed out that LIC is 100 percent owned by the Indian government. LIC generates almost all its premiums in India, reflecting its concentration in one market, its high reliance on the domestic economy, and its exposure to an evolving operating environment.

Moody's review concludes that there is little, if any, reason to believe that LIC would be insulated from any government debt crisis, if it were to occur.

LIC has meaningful and rapidly increasing direct or indirect exposures to the government through its holdings of government securities and its equity investments in government-related entities, including banks and corporations.

As of Dec 31, 2011, the ratio of Indian government securities to adjusted shareholders' equity was 764 percent (excluding unit-linked invested assets).

"Consequently, Moody's views the lower rating -- which is now positioned at the rating of the Indian government -- as more appropriate to capture the credit profile of LIC," it said.

This revision takes place in the context of an ongoing global review affecting financial institutions whose ratings are higher than the rating of the government where they are domiciled.