Lehigh Valley

Government Default Could Affect Insurance Premiums

A government default could hit you where it hurts: In the wallet!

Experts said the debt-limit crisis could cause interest rates to climb and your insurance premiums might go with them.

For the first time in history, Standard and Poors has rated the United States at four percent likely to defaut on its debts.

What does it mean to you?

On thing you may not have thought of is potentially higher insurance premiums.

Here's why:

While the nation's Triple A credit rating is still intact leading up to the debt ceiling deadline, a downgrade will mean U.S. bond's won't be worth as much.

"Insurance companies because their obligations are long term basically have to invest in long term securities," said Financial Analyst Kamram Afshar of KAA INC in Bethlehem.

A.M. Best out of Hunterdon County, New Jersey put many of the nation's insurance carriers through a stress test to see how a downgrade would affect their balance sheets.

"Companies have learned from some of the issues that happened years ago and through the last two to three years they have strengthened their risk management they have increased and improved their liquidity,"said A.M. Best's Ken Frino.

Even so, local experts say a credit downgrade will decrease the value of U.S. Bonds and increase interest rates.

That could potentially prompt insurance companies to pass losses onto customers in terms of the products they offer or higher premiums.

That's just one of the many reasons why experts say it's so important leaders in Washington come up with a plan to reduce the debt and solve the issue of the debt ceiling before drastic measures are taken.

"You can't un-ring a bell once we do this. This is going to have lasting impact on the financial value of U.S. securities for a long time to come, " said Dr. Jim West of Moravian College.

Right now A.M. Best is forecasting a stable outlook for the insurance industry but it is watching for any changes.

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