RPT-Fitch releases report on N American life insurers' financial leverage & debt-servicing capacity

Tue Sep 24, 2013 9:07am EDT
 
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Sept 24 (Reuters) - (The following statement was released by the rating agency)

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 2010 to June 30, 2013. 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 reasonable debt-servicing capacity. U.S. life insurers' earnings have improved thus far in 2013, and correspondingly, GAAP operating-based coverage metrics have also improved. The recent run-up in interest rates and equity market valuations, if sustained in the second half of 2013, 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 continuing low interest rates and uncertainty tied to a weak economic recovery.

In aggregate, financial leverage for Fitch's publicly traded life insurance universe has steadily increased since 2011. This has been driven by increased debt issuance, a decline in shareholders' equity (excluding unrealized investment gains and losses) due in part to a deferred acquisition cost (DAC) GAAP accounting change and a change in Fitch's hybrid equity-credit criteria. Fitch believes the industry faces minimal near-term refinancing risk since only a modest portion of outstanding borrowings mature during the remainder of 2013 and throughout 2014. Issuance of long-dated and perpetual securities thus far in 2013 is down from the prior year and was primarily to pre-fund upcoming maturities. Through the first eight months of 2013, USD5.8 billion of debt and preferred securities were issued in the U.S. and CAD1.1 billion in Canada. The report 'Life Insurers' Financial Leverage and Debt Servicing Capacity' dated Sept. 23, 2013, is available at 'www.fitchratings.com' under 'Insurance' and 'Special Reports'.