James Moore: Time for a new brolly?

Outlook: Has Legal & General's umbrella just sprung a leak? It might sound terribly technical, but there's more than meets the eye to Moody's decision to change the way it rates hybrid securities and subordinated debt instruments issued by banks. Before the financial crisis the ratings agency had taken the view that investors in this type of debt would benefit, at least to an extent, from support provided to a troubled bank by national governments or central banks. Now we know that ain't necessarily so. The EC thinks that bond holders should share the pain of a bailout.

The upshot of this is that this type of debt would appear to be riskier than had at first been thought. The really interesting bit is how the downgrade affects the insurance companies that hold them. By some estimates, L&G has up to £2.2bn of this stuff on its books, although the company's interpretation of what Moody's has said means only about £400m is at risk of being downgraded.

Even so, it will be most interesting to see how the Financial Services Authority reacts when the time comes to look at L&G's financial strength. No doubt one Clive Cowdery, fresh from completing his buyout of Friends Provident and in need of another deal, is watching closely.