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  • Fitch: Stable Outlook for U.S. Life Insurers in 2016

    December 15, 2015 by Business Wire

    CHICAGO–(BUSINESS WIRE)–The Rating Outlook for the U.S. life insurance industry is Stable for 2016, according to Fitch Ratings. In addition, the fundamental sector outlook is stable. Fitch’s outlook considers the industry’s very strong balance sheet fundamentals, strong liability profile, and stable operating performance.

    These positive factors somewhat mitigate Fitch’s ongoing concerns over persistent low interest rates that will continue to pressure interest margins and reserve adequacy in 2016. Fitch expects continued earnings pressure in 2016 due to reduced interest margins, which will offset modest growth in fee and underwriting income.

    Credit-related investment losses are expected to increase in 2016 under Fitch’s base case scenario but remain somewhat below historical averages and pricing levels. Key credit concerns that could lead to higher than expected losses include continued weak commodity prices, softening global demand, the impact of Fed rate hikes and increasing geopolitical risk.

    Fitch expects reported statutory capitalization, which exceeds both pre-crisis levels and rating expectations, to remain near current levels in 2016, driven by retained earnings and modest growth in in-force business. Further, Fitch continues to view the industry’s liquidity profile as strong, despite increased exposure to less liquid investments.

    Legacy variable annuity (VA) risk has diminished somewhat due to improved equity market conditions in recent years, but continues to be a source of reserve and capital volatility as experienced in the second half of 2015. Longer term, Fitch remains concerned about tail risk associated with the product’s living benefit guarantees, which could cause a material hit to industry earnings and statutory capital in a severe stress scenario.

    Fitch believes that a rise in interest rates by 100 bps to 150 bps could have positive implications for our sector outlook for U.S. life insurers. Conversely, if interest rates decline to levels seen in late 2012 (i.e, 10-year treasury below 1.75%) and stay low much beyond 2016, Fitch would likely change its outlook to negative based on a weakened earnings profile and anticipated capital impacts associated with reserve strengthening.

    The full ‘2016 Outlook: U.S. Life Insurance’ is available at ‘www.fitchratings.com’ or by clicking the link below.

    Additional information is available at ‘www.fitchratings.com’.

    2016 Outlook: U.S. Life Insurance (Low Interest Rates Remain an Earnings Headwind)

    https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874979

    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.

    Contacts

    Fitch Ratings
    Douglas L. Meyer, CFA
    Managing Director
    +1-312-368-2061
    Fitch Ratings, Inc.
    70 W. Madison Street
    Chicago, IL 60602
    or
    Dafina M. Dunmore, CFA
    Director
    +1-312-368-3136
    or
    Julie A. Burke, CFA, CPA
    Managing Director
    +1-312-368-3158
    or
    Media Relations
    Hannah James, +1-646-582-4947

    Originally Posted at Business Wire on December 10, 2015 by Business Wire.

    Categories: Industry Articles
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