Moody’s Warns Insurance Sector on Intangible Assets

A report on the insurance sector by credit ratings agency (CRA) Moody’s suggests that current market conditions elevate the risk of intangible asset impairments.

The report, entitled
‘Current Market Conditions Elevate Risk of Intangible Asset Impairments’
, includes the following comments: 

• Intangible asset impairments can have material adverse implications for insurers. Since such impairments are often an indication that future expected profitability of a business segment or subsidiary are lower than originally contemplated by management, intangible asset impairments could damage investor confidence and consequently the company’s access to the capital market.

• Impairments peaked in 2010, but the risk for further significant impairments remains. Insurers operating in developed life markets suffered the largest impairments due to challenging life sales and the low interest rate environment. Although impairment charges reduced in 2011 and 2012, Moody’s believes that impairment indicators remain, making it more likely that insurers will record additional impairment charges in the near- to medium-term.

• Insurers with significant life operations are under the most pressure to impair intangibles as their performance is correlated to the economy and financial markets. The report outlines three key impairment indicators specific for European insurers – the weak economic climate, which continues to suppress sales and investment income; previous merger and acquisition (M&A) transactions that may have been based on now unrealistic growth expectations; and intensified new business competition from banks in anticipation of Basel III. It goes on to analyse which groups and intangible assets classes are most exposed to these indicators.

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