In this report, Fitch analyzes key holding company credit metrics of publicly traded life insurance organizations, examining changes in financial leverage and debt-servicing capacity from year-end 2011 to
The North American life insurance industry continues to maintain balance sheet strength and improved debt-servicing capacity. U.S. life insurers' operating earnings showed modest improvement thus far in 2013, and correspondingly, GAAP operating-based coverage metrics improved. Continued run-up in equity market valuations, if sustained, and an uptick in interest rates would be primary drivers of further improvements in coverage. Longer term, Fitch believes life insurers face an uphill battle in materially improving operating earnings-based interest coverage metrics due to a continuation of historically low interest rates and uncertainty tied to a weak economic recovery.
In aggregate, financial leverage for Fitch's publicly traded life insurance universe declined in the first half of 2014 and is now at its lowest level in five years. This was driven by an increase in shareholders' equity (excluding unrealized investment gains and losses) as well as a reduction in outstanding debt. Fitch notes that financial leverage for some companies was temporarily elevated at year-end 2013, reflecting prefunding of near-term maturities.
Fitch believes the industry faces minimal near-term refinancing risk, since only a modest portion of outstanding borrowings mature during in the remainder of 2014 and 2015. During the first six months of 2014,
The report 'Life Insurers' Financial Leverage and Debt Servicing Capacity' dated
Additional information is available at 'www.fitchratings.com'.
Insurance Rating Methodology (
Insurance Rating Methodology
Source: Fitch Ratings
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