El Salvador’s credit rating agency warns bitcoin plan will hurt country’s insurance sector

Ratings agency Fitch Ratings believes El Salvador’s insurance companies will be on thin ice when the country accepts bitcoin.

Fitch, one of the Big three rating agencies, argues that exposure to volatile price fluctuations and operational risks of crypto assets could negatively affect El Salvador’s insurance companies.

 
“Bitcoin as a legal tender, which determines the final legislation of El Salvador, the currency [currency] volatility, and earnings due to additional regulatory and operational risks as well as the newly created currency is exposed to who is likely to have a negative impact on local insurance companies…

Insurers who keep bitcoin on their balance sheets for longer will be sharply prone to price fluctuations, increasing asset risk, which is a negative credit factor.”

The New York Giant says the country’s insurance companies are already exposed to risky assets, and so October’s additional exposure to bitcoin could exacerbate that risk.

“Fitch often sees revenue from speculative activities, or risky risks such as bitcoin, as a negative credit, because earnings can change rapidly and create a volatile revenue stream. The country’s insurance sector is already exposed to low credit quality securities, mostly government bonds (B / negative October outlook), so that additional stocks of high-risk assets will only increase that risk.”

Fitch believes Salvadoran insurance companies will be forced to develop significantly more infrastructure so they can use bitcoin in their business models.

“Fitch hopes that the approval of bitcoin insurance companies will require it to cover new IT (information technology), operational and administrative costs. Rather, internal payment acceptance procedures are needed to improve the security of their systems against cyber risks and scams and to advise the board and managers and improve efficiency and investment in staff training and training (d)

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