December 6, 2017 / 4:38 PM / 11 days ago

Fitch Revises U.S. Life Insurance Sector Outlook to Stable for 2018

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Fitch 2018 Outlook: U.S. Life Insurance (Sector Outlook Revised to Stable) here CHICAGO, December 06 (Fitch) Better than expected operating performance and a benign credit environment likely to continue into next year have led Fitch Ratings to revise its fundamental sector outlook for U.S. Life Insurers to stable from negative, as the rating agency details in its 2018 outlook report. The large majority of ratings in the U.S. life insurance sector are currently stable. The limited number of rating changes over the past year has been driven by industry M&A, which Fitch expects will continue into 2018. "Operating performance has surpassed expectations over the past year thanks to favorable equity and credit markets," said Douglas Meyer, managing director, Fitch Ratings. "Low interest rates are still pressuring interest margins on in-force business, though recent results have benefited from higher than expected variable investment income and modest credit losses." Fitch's base case scenario calls for a modest increase in interest rates in 2018. That being said, further declines in portfolio investment yields, interest margins and reserve adequacy are expected due to low reinvestment rates and limited crediting rate flexibility on legacy in-force business. Moreover, Fitch expects low interest rates will continue to factor into additional life insurance industry restructuring and M&A. Over the past year, Fitch notes that a number of U.S. life insurers took significant steps to exit and/or reduce exposure to underperforming legacy interest-sensitive businesses. Credit-related investment losses are expected to remain modest for U.S. life insurers in 2018. Concerns in the broader market have shifted from the energy sector to retail, which is expected to underperform in 2018. Nonetheless, life insurer investment exposure to retail is manageable in the context of the industry's earnings and capital. Key credit concerns within the sector include regulatory uncertainty and competitive challenges in the individual annuity market, a major line of business for the industry. While longer-term fundamentals of the business remain favorable, near-term sales results are likely to be pressured due to uncertainty tied to the pending DOL fiduciary. This directly impacts the variable annuity and fixed indexed annuity markets. Fitch is most concerned about top-line pressures affecting product pricing and the use of aggressive product features. The full report is available by clicking on the link above. Contact: Douglas L. Meyer, CFA Managing Director +1-312-368-2061 Fitch Ratings, Inc. 70 W Madison Street Chicago, IL 60602 Julie A. 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