Insurance News - Fitch: Life Insurers' Margins 'Under Pressure'

NEW YORK--(BUSINESS WIRE)-- Operating returns for U.S. life insurers in 2011 have been in line with Fitch Ratings' expectations, according to a report published today. Annualized average operating return on assets, which excludes all realized gains and losses, was 1.29% at the end of the first half, compared with 1.31% for full-year 2010. These results are in line with 2009 returns but are well below 2008 and earlier returns in the 1.50%-1.80% range. Fitch anticipates it will be some time before U.S. life insurers' profitability returns to pre-crisis levels. 

Operating margins for U.S. life insurers remain under pressure due to declining investment yields, competitive pricing, and the soft economy, which is affecting revenue and sales growth. Management decisions to pull back from or exit certain markets and/or product lines are also having an impact. Life insurers have also beefed up their hedging programs, which adds to expenses.

Results for U.S. life insurers have been affected positively by material declines in realized investment losses, which Fitch expects will continue through 2011. A number of life insurers were aggressive in writing down or selling problem assets, particularly non-agency residential mortgage backed securities (RMBS), lower quality commercial mortgage backed securities (CMBS), and corporate bonds in 2008 and 2009, and this positioned them for better results in 2010 and 2011.

The full report, 'U.S. Life Insurers' 2011 GAAP Results in Line with Expectations' is available at 'www.fitchratings.com' under the following headers:

Sectors >> Financial Institutions >> Insurance >> Research

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Life Insurance Rating Methodology', March 31, 2011;

--'2011 Statutory Trends for the U.S. Life Sector', Aug. 17, 2011;

--'2011 Outlook: U.S. Life Insurance', Jan. 11, 2011.

Applicable Criteria and Related Research: U.S. Life Insurers' 2011 GAAP Results in Line with Expectations

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=650710

2011 Outlook: U.S. Life Insurance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595365

Life Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=612905

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Fitch Ratings
Primary Analyst
Cynthia J. Crosson , +1-212-908-0863
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Douglas L. Meyer , CFA, +1-312-368-2061
Managing Director
or
Tertiary Analyst
Douglas R. Baker , +1-312-368-3207
Analyst
or
Media Relations, New York
Brian Bertsch , +1-212-908-0549
brian.bertsch@fitchratings.com

Source: Fitch Ratings