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| Source: | Business Wire |
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OLDWICK, N.J.–(BUSINESS WIRE)– In the fourth quarter of 2008, A.M. Best Co. revised its rating outlook on the U.S. life/annuity sector to negative from stable as the life insurance industry began to experience instability like never before. Because credit spreads had widened, asset values cratered, equity markets nosedived (led by life insurance stocks), volatility spiked and the capital markets froze, everyone was forced to focus on liquidity at a time when its price was at its peak. Since that time, A.M. Best has observed more favorable trends, and last month, revised its rating outlook on the U.S. life/annuity sector back to stable.
- To a large extent, substantial unrealized loss positions in general account investment portfolios have recovered as of first quarter 2010. Several life insurers have successfully raised capital through debt and equity issuances to: fund near-term maturities, decrease leverage, reduce reliance on short-term funding, and/or contribute capital to their operating subsidiaries.
- Additionally, life and annuity companies have curtailed or de-emphasized sales of products that are more capital intensive. But A.M. Best remains concerned that sizable blocks of inforce variable annuities remain exposed to equity market downside.
- Fundamentals for the vast majority of life and annuity companies are currently sound, despite a cloudy macroeconomic picture and a cautious outlook recently announced by the Federal Reserve. A.M. Best maintains a cautious view with respect to the future impact of both residential and commercial mortgage delinquencies, as well as restructured loans, which may be masking the true default rate of these investments.
- The persistent low interest-rate environment is likely to continue to pressure spreads and reinforce current levels of reinvestment risk. And, although the current state of financial regulatory reform is likely to have a limited impact on life insurers, the lack of direction from the current administration regarding 2011 tax changes is causing uncertainty on the part of investors, producers and consumers.
- Notwithstanding the considerable upsurge in the industry’s capitalization on both an absolute and risk-adjusted basis, A.M. Best believes that the overall quality of capital has diminished given the volume of recent surplus note issuances, reserve financings and reinsurance transactions to provide capital relief. Going forward, A.M. Best will monitor the life industry’s strategies for deploying capital as merger and acquisition activity and share-repurchase programs resume.
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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
A.M. Best Co.
Analysts
Rosemarie Mirabella, 908-439-2200, ext. 5892
rosemarie.mirabella@ambest.com
or
Andrew Edelsberg, 908-439-2200, ext. 5182
andrew.edelsberg@ambest.com
or
Public Relations
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
Source: A.M. Best Co.
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