NEW YORK - Investors continued to have a more negative view relative to Moody's ratings of the global insurance sector at the end of the first quarter of 2012, based on Moody's Global Insurance CDS Index,or MDYGIX, the rating agency says in a report titled "Insurance CDS Spreads Tighten in Q1; Biggest Movers Are Genworth and AIG". The median CDS-implied ratings gap of companies in the index remained negative at quarter-end, after dropping below zero in late 2007. AIG and Genworth both saw a significant narrowing in their CDS-implied ratings gaps during the quarter, although the latter gave much of the improvement back at the start of Q2.
The median gap was negative 2.5 notches at the end of the first quarter, slightly wider than the 2.3 notches recorded at end-2011. And five-year mid-spreads narrowed across all insurance sectors, consistent although not as much as the broader corporate market.
"CDS spreads for both investment-grade and below-investment-grade firms narrowed during the first quarter of this year," says Senior Vice President Scott Robinson. "This indicates that although concerns about economic decline in Europe and beyond continue to weigh on the markets, and in particular financial firms, in the US investors see the economic recovery is expanding." The movement in insurance CDS spreads reflects this general market sentiment.
Trends were mixed across sectors, Robinson says. The US multiline sector improved the most, narrowing 1.4 notches, while global reinsurance saw the biggest deterioration, widening 0.6 notches, with other sectors showing smaller fluctuations.
The improvement in the multiline sector was driven by AIG and Genworth. Genworth, however, gave much of this back in April after it announced it was delaying a minority IPO of its Australian subsidiary. As for AIG, it continues to strengthen its credit profile while pursuing a long-term plan to improve the performance of its core insurance operations.