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Fitch: Redenomination Risk and Insurance Ratings
April 28, 2017 / 10:19 AM / in 7 months

Fitch: Redenomination Risk and Insurance Ratings

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Redenomination Risk and Insurance Ratings here LONDON, April 28 (Fitch) Fitch Ratings says a currency redenomination by a country's government could result in the redenomination of a domestic insurer's local policyholder obligations. In such circumstance, Fitch expects there would likely be some differentiation among policies, particularly those sold to foreign compared to domestic policyholders. Redenomination into a different currency would often, but not always, cause domestic insurers to default. Fitch would assess such an event on a case-by-case basis, taking into account all relevant information at the time. One key risk potentially facing insurers would be if invested assets and liabilities were redenominated in an uneven manner, resulting in a material currency mismatch. In such a case, the insurer could incur a large economic loss, potentially resulting in a "shock loss" to equity capital. It is possible that a holding company and its subsidiary operating companies could experience significantly different consequences in a redenomination scenario, yet linkages would exist. For example, a subsidiary operating company's policyholder obligations may be redenominated and devalued, and thus the operating company may experience a default, yet the holding company could avoid a default if its debt was not redenominated. Fitch would classify redenomination as a default if the policyholder or other creditors were not fully repaid in the original currency (or, for example, under some form of phased-in new currency), as long as the original currency continued to exist, which would probably be the case if the country was exiting a currency union. Examples that do not result in a default include: if the exchange were optional; if there were some facility whereby policyholders, counterparties and investors continued to be paid in the original currency while a new currency were phased in; or if the original currency ceased to exist, so that the new currency became its legal successor and the conversion resulted in no material loss of terms to creditors. Contact: Chris Waterman Managing Director +44 20 3530 1168 Fitch Ratings Limited 30 North Colonnade London E14 5GN Harish Gohil Managing Director +44 20 3530 1257 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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