News Column

Fitch Releases Special Report on North American Life Insurers' Financial Leverage and Coverage

August 28, 2014



CHICAGO--(BUSINESS WIRE)-- Fitch Ratings today released a Special Report that details its examination of U.S. and Canadian life companies' financial leverage, debt-servicing capacity and maturity distribution of outstanding debt.

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 June 30, 2014. The report compiles regulatory filing data from 18 publicly traded life insurers in Fitch's debt rating universe.

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, USD1.55 billion of debt and preferred securities were issued in the U.S. and CAD1.15 billion in Canada. Issuance in Canada in the first half of 2014 was comparable with the same period in 2013. However, in the U.S., issuance was down from USD3.6 billion for the same period in 2013. In the U.S., all of the issuance was senior unsecured debt. In Canada, the split was 65% subordinated debt and 35% perpetual preferred.

The report 'Life Insurers' Financial Leverage and Debt Servicing Capacity' dated Aug. 27, 2014, is available at 'www.fitchratings.com' under 'Insurance' and 'Special Reports' or by clicking on the link above.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

Insurance Rating Methodology (November 2013).

Applicable Criteria and Related Research: North American Life Insurers' Financial Leverage and Debt-Servicing Capacity

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=764428

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.




Fitch Ratings

Tana M. Higman

Director

+1-312-368-3122

Fitch Ratings, Inc.

70 West Madison St.

Chicago, IL 60602

or

Douglas L. Meyer, CFA

Managing Director

+1-312-368-2061

or

Douglas R. Baker

Analyst

+1-312-368-3207

or

Media Relations

Brian Bertsch, +1 212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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