Fitch Ratings has released a special report that details its examination of U.S. and Canadian life insurance companies' financial leverage, debt-servicing capacity, and maturity distribution of outstanding debt.
In this report, Fitch analyzed key holding company credit metrics of publicly traded life insurance organizations rated by Fitch, examining changes in financial leverage and debt-servicing capacity from year-end 2012 through the first half of 2015. The report compiled regulatory filing data from 20 publicly traded life insurers in Fitch's debt rating universe.
According to Fitch, the North American life insurance industry continued to maintain balance sheet strength and stable debt-servicing capacity. Earnings results were mixed during the first half of 2015, and as a result EBIT based GAAP coverage metrics improved for about one-half of companies and declined for the rest with only a handful of companies showing steady metrics. Fitch's publicly traded life insurance universe improved operating fixed charge coverage slightly to 8.7x through June 30, 2015.
Longer term, Fitch said, it believes life insurers face an uphill battle to materially improve operating earnings-based coverage metrics due to a continuation of historically low interest rates and uncertainty tied to market returns. Additionally, a rapid uptick in interest could have a more immediate impact of capital and liquidity.
In aggregate, the financial leverage ratio (“FL”) for Fitch's publicly traded U.S. life insurance universe remained relatively flat, with only a slight decline through June 30, 2015 to 26.9 percent from 27.0 percent at year-end 2014. Financial leverage among Canadian companies also declined slightly to 18.0 percent from 18.5 percent at year-end 2014. These declines were driven by an increase in shareholders' equity (excluding unrealized investment gains and losses on bond investments), coupled with a decline in the total amount of debt and preferred securities outstanding.
Fitch said that it believes the industry faces minimal near-term refinancing risk, since only a modest portion of outstanding borrowings mature during the remainder of 2015 and 2016. During the first six months of 2015, USD5.4 billion of debt and preferred securities were issued in the U.S. and CAD1.6 billion in Canada. In the U.S., 100 percent of total issuance was senior unsecured or junior subordinated debt. In Canada, the split was 71 percent subordinated debt and 29 percent perpetual preferred.
Learn more: www.fitchratings.com.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].