Fitch warns that El Salvador's adoption of Bitcoin will have a negative impact on insurers' credit.

Due to increased foreign exchange and earnings volatility risk, El Salvador's decision to accept bitcoin as legal money would likely be credit negative for local insurance firms with exposure to the cryptocurrency, Fitch Ratings stated in a press statement on Monday.

- On June 9, El Salvador's legislature approved and enacted a Bitcoin Law, which would see the nation officially accept cryptocurrency as legal money on September 7.

- El Salvador accepting bitcoin as legal currency carries "added regulatory and operational risks," according to Fitch Ratings, since bitcoin's practical application has yet to be defined by authorities across the globe.

- The agency said that it does not anticipate insurers to utilize bitcoin to file claims or pay benefits in the digital currency, nor to sell insurance in the digital currency.

- “The dangers of adopting bitcoin are mainly determined by how widely it is accepted by policyholders. If policyholders want to pay premiums using bitcoin, insurers would likely convert it to USD as soon as possible to minimize currency risks, according to Fitch.

- The insurance industry in El Salvador is now exposed to poor credit quality assets, primarily government bonds (B-/Rating Outlook Negative).

- Additional ownership of high-risk assets, according to Fitch, will only increase the danger.

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