Moody's Talks - Focus on Finance

The insurance group’s Helena Kingsley-Tomkins explains what’s driving the global reinsurance outlook shift to stable from negative. Plus, Young Kim tells us how evolving technology and rising fintech competition are transforming Korea’s insurance business.Inside this episode:Young Kim tells us how evolving technology and rising fintech competition are transforming Korea’s insurance business. (begins at 1:45 mins)Helena Kingsley-Tomkins explains what’s driving the global reinsurance outlook shift to stable from negative. (begins at 9:35 mins)Related content:Reinsurance – Global - Change to stable outlook reflects sound pricing, economic rebound - We have revised our outlook on the reinsurance sector to stable from negative, reflecting continued reinsurance price increases as the global economy recovers from the pandemic.Insurers – Korea - Stakes are rising in fintech adoption - Digital transformation will bring new business opportunities and operational efficiencies to Korean insurers but also heightens competition and adjustment risks they face. 

As infections rise and overall vaccination rates remain low in Southeast Asian nations and India, loan performance will weaken as economic recoveries stall, although the effects will vary by country. However, government support and strong loss-absorbing buffers will support banks’ credit strength.Related content:Property & Casualty – United States of America Losses from Dixie wildfire will hit California property and casualty insurers - Total insured losses from California wildfires are likely to exceed $1 billion for California homeowners insurers and commercial property insurers. Allianz SE US DOJ investigation into investment funds raises financial and reputational risk - DoJ investigation into investment activities of “Structured Alpha” funds raises the risk of a financial hit to the group and highlights governance challenges of complex groups. Aon, Willis Towers Watson Termination of Aon-Willis Towers Watson merger agreement poses governance challenge for WLTW - Aon and WLTW must reset their corporate strategies after terminating their proposed merger. The firms reduced their financial leverage and accumulated cash in preparation for the merger. Banks – ASEAN and India Asset risks will rise amid resurgences of coronavirus infections but credit strength will remain intact  - Asset risks will rise for banks in the region amid a surge in coronavirus cases. However, the negative impact will be mitigated by continued policy support and strong loss-absorbing buffers. 

Inside this episode:Tae Jong Ok looks at Kakao Bank’s rapid rise from its social media origins to one of Korea’s biggest retail lenders. Plus, Christian Badorff and Melina Skouridou talk about the insurance impact of recent heavy floods in Germany, and the European Central Bank’s plan to pilot a digital euro.Related content:Banks – Europe: Despite financial inclusion benefits, digital euro poses disintermediation risks to banks, a credit negative A digital euro would support innovation and financial inclusion, and could become an alternative to stablecoins, but would reduce banks' profitability and increase disintermediation risk.Insurance – Germany: German floods will hit P&C insurers' profit, highlighting climate change risk Devastating floods that hit parts of Germany on 14 and 15 July look set to cause insured losses of €4 billion to €5 billion, according to preliminary estimates. Banks – Korea: Big Tech success in banking highlights rising competition from virtual banks Big Tech success in banking highlights rising competition from virtual banks 

Dean Ungar diagnoses the causes of US health insurers’ evolution over the past decade, and discusses the benefits and risks for the sector’s credit strength. Plus, Guy Combot and Atsi Sheth talk about recent changes in Italian bank governance and the broader credit implications of increased gender diversity.Inside this episode:Guy Combot and Atsi Sheth talk about recent changes in Italian bank governance and the broader credit implications of increased gender diversity. (begins at 2:12 mins)Dean Ungar diagnoses the causes of US health insurers’ evolution over the past decade, and discusses the benefits and risks for the sector’s credit strength.  (begins at 9:55 mins)Related content:Banks – Italy: New “fit and proper” board criteria will reinforce Italian bank governanceESG – Global: Rising focus on gender inclusion highlights links to economic growth and credit qualityHealth Insurance – US: Sector’s evolution brings increased scale and diversification but also higher leverageAetna Inc., Anthem, Centene Corp., Cigna Corp., Humana Inc., UnitedHealth Group : Vertical integration: short-term credit pain, long-term credit gainHealth Insurance – US: Policy drive toward transformation of health insurance poses risks to profitability

Inside this episode:Rajeev Bamra and Steve Tu speak with Carolyn Henson about why stablecoin growth has put traditional financial institutions and bank regulators on the defensive. Meanwhile, David Fanger explains why large US banks will be able to distribute more to shareholders this year, and Marina Cremonese discusses money market funds’ readiness for the transition away from LIBOR.Related content:Banks – United States: Lower stress capital buffers allow many banks to increase capital distributions, a credit negative Compliance with regulatory buffer requirements and dividend caps supports US banks' capitalization.Money Market Funds – Cross Region: Money marketfunds are well positioned for IBOR phase-out MMFs face little disruption from the phase-out of IBOR reference rates. The sector is adopting alternatives, and will rapidly replace IBOR-linked portfolio assets.Technology & Innovation – Global: FAQ on the risks and opportunities of stablecoins Stablecoins, a digital currency, have many potential uses in banking and finance. They also pose risks that if left unaddressed could undermine financial stability and monetary sovereignty.Financial Institutions – Cross Region: G-7 call to step up dialogue on digital currencies is likely to hasten disintermediation of banks and payments providers Although digital currencies potentially will generate significant public benefits, a direct link between customers and public money risks disintermediating payment companies and banks.

Madhavi Bokil, Alexios Philippides and Laura Bazer explain how banks’ profit margins and US life insurers’ portfolio yields will benefit from rising inflation and a steeper yield curve in several advanced economies. Plus, Joe Pucella discusses the outlook for US commercial real estate lenders and Neal Epstein talks about Federal Reserve actions that helped money market funds stave off the risk of negative yields.Inside this episode:Joe Pucella discusses the outlook for US commercial real estate lenders and Neal Epstein talks about Federal Reserve actions that helped money market funds stave off the risk of negative yields. (begins at 2:26 mins)Madhavi Bokil, Alexios Philippides and Laura Bazer explain how banks’ profit margins and US life insurers’ portfolio yields will benefit from rising inflation and a steeper yield curve in several advanced economies. (begins at 9:16 mins)Related content:Commercial Real Estate Lenders – US: Change in outlook to stable from negative reflects recovering demand and asset values - We expect property demand and asset values to rise in many CRE sub-sectors over the next 12-18 months, and improved conditions will support the asset quality of lenders' loan portfolios.Money Market Funds – US: Fed's key repo rate increase throws lifeline to money market funds - The demand for high-quality short-term investments is outstripping supply, causing yields to hover near zero. Money market fund returns, and sponsor fees, will remain compressed.Banks – Global: Interest rate cycle shift bodes well for banks' profitability - Rising long-term interest rates are driving a gradual steepening in the yield curve in a number of countries. Provided the trend continues it will boost banks' margins in these jurisdictionsMacroeconomics – US: US inflation indicators rise, but the increase is likely temporary - Inflation measures show acceleration in inflation due to base effects, one-off price increases and surging demand. We expect inflation to temporarily rise, eventually settling around 2%.Life Insurance – US: Life Insurers US: a little inflation is credit positive; a sizable spike would hurt - A modest rise in long-term interest rates, will give a boost to life insurers’ investment income and spread-based earnings 

Manoj Jethani, Laura Bazer and Rory Callagy discuss the reasons for returning the outlooks for global and US life insurance and global asset management to stable from negative. Plus, James Eck updates us on Puerto Rico’s debt settlements.Inside this episode: James Eck updates us on Puerto Rico’s debt settlements. (begins at 1:53 mins)Manoj Jethani, Laura Bazer and Rory Callagy discuss the reasons for returning the outlooks for global and US life insurance and global asset management to stable from negative. (begins at 7:03 mins)Related content:Assured Guaranty Ltd. and MBIA Inc. Proposed Puerto R ico GO and revenue bond settlements clarify recovery rates for financial guarantors - With the significant majority of the guarantors’ Puerto Rico exposures now covered by settlement agreements, we have updated our exposure analysis for the financial guarantors.Life Insurance - US Strengthening US economy supports return to stable outlook - As the vaccine rollout progresses, the improving health and mobility of the US population will spur growth in insurance sales, revenue, and profits.Life Insurance – Cross Region Outlook revised to stable from negative - We have changed the outlook for the global life insurance sector to stable from negative for 2021.Asset Management – Global Outlook changes to stable on higher financial markets, stronger flows - The return to stable reflects a clear improvement in the industry's operating conditions.

Alberto Postigo and Alka Anbarasu discuss the threat of climate change to banks’ asset quality. Plus, Megan Fox and Steve Tu talk about the effects on banks and asset managers of the Biden administration’s new executive order on climate-related financial risk, and Sid Ghosh tells us whether businesses around the world can get insurance coverage for disrupted operations during the pandemic.Inside this episode:Megan Fox and Steve Tu talk about the effects on banks and asset managers of the Biden administration’s new executive order on climate-related financial risk, and Sid Ghosh tells us whether businesses around the world can get insurance coverage for disrupted operations during the pandemic. (begins at 2:37)Alberto Postigo and Alka Anbarasu discuss the threat of climate change to banks’ asset quality. (begins at 8:06)Related content:Insurance – Global: As coronavirus claims slow, risk to profitability recedes - Global coronavirus (re)insured losses will be contained within earnings as losses slow in 2021.Property & Casualty – US: Coronavirus litigation favors US insurers; legislative changes have mixed implications - US courts have largely sided with (re)insurers in litigation related to business interruption insurance, though a large number of cases are still pending.Banks – US: Biden order aims for coordinated assessment and mitigation of banks' climate-related financial risks, a credit positive - The oversight is credit positive for banks because it will contain their financial risk from climate-related and environmental risks.Asset Management – US: Biden executive order on climate-related financial risk benefits ESG focused asset managers  - The executive order clears the way to remove restrictions the prior administration had placed on investing in ESG, which has been a key growth area for asset managers.Banking – Global: Climate change to force further business model transformation for ban - Climate change creates operational and strategic challenges for banks globally as governments transition towards low-carbon economic models, and as physical climate risks become more acute.Banks – Asia-Pacific: Climate risks are growing, with large, diversified banks better positioned to cope - Large, diversified banks are inherently less susceptible to climate risks from a single location or industry. Also, they have been proactive in devising strategies to deal with such risks. 

Vanessa Robert and Marina Cremonese of the Funds and Asset Management team discuss new money market fund regulations proposed in the US and EU after a material flight to quality shook short-term credit markets last year. Plus, Svetlana Pavolva of the Banking team explains the significant social risks facing banks in Commonwealth of Independent States countries.Inside this episode:Svetlana Pavolva of the Banking team explains the significant social risks facing banks in Commonwealth of Independent States countries. (begins at 3:26)Vanessa Robert and Marina Cremonese of the Funds and Asset Management team discuss new money market fund regulations proposed in the US and EU after a material flight to quality shook short-term credit markets last year. (begins at 10:31)Related content:Banks – Commonwealth of Independent States: “Civil unrest and demographic changes pose substantial social risks - Banks in the region are facing substantial social risks stemming from demographic and societal trends, as well as customer relations.Money Market Funds – Cross Region: Money market funds face more rule changes after coronavirus turmoil - Regulators intend to review MMF rules this year after the financial market impact of the coronavirus crisis in March 2020 raised concerns about the sector's systemic risk.Money Market Funds – US: Funds face bear market on flight to quality - Money market funds face two main risks: uneconomic yields on Treasury and government funds and sharp NAV declines for credit-sensitive funds. 

Gersan Zurita of the Credit Strategy and Research team and Semyon Isakov of the Banking team discuss rising inflation in some key emerging markets. Plus, Felipe Carvallo and Mik Kabeya of the Banking team talk about slipping government support for banks in economies that are heavily dependent on oil.Inside this episode:Felipe Carvallo and Mik Kabeya of the Banking team talk about slipping government support for banks in economies that are heavily dependent on oil. (begins at 2:04)Gersan Zurita of the Credit Strategy and Research team and Semyon Isakov of the Banking team discuss rising inflation in some key emerging markets. (begins at 6:48)Related content:Banking System Outlook Update – Mexico: Negative outlook on prolonged recovery and deteriorating government support - We maintain our negative outlook for the Mexican banking system in line with our expectation that less predictable policy response will weigh on economic recovery and government support.Banking System Outlook Update - Saudi Arabia: Negative outlook reflects asset quality pressure and weakening government support - Our outlook for the Saudi banking system is negative. The outlook reflects our view of how the banks' creditworthiness will evolve over the next 12 to 18 months.Banks – Russia: Climbing inflation will boost large bank dominance amid structural shift in funding - Rising inflation has turned real yields on deposits negative, hastening the movement of savings out of term deposits, which will boost large banks dominance.Macroeconomics – Latin America: Pace of inflation quickens but long-term implications will depend on any sustained acceleration - Basic commodity prices have risen by 50% on average over the last 12 months across Latin America, with differing drivers and effects by country.