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Fitch: US Life Insurer Leverage Unchanged; Canada Ticks Up
June 2, 2017 / 4:22 PM / 6 months ago

Fitch: US Life Insurer Leverage Unchanged; Canada Ticks Up

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: North American Life Insurers’ Financial Leverage and Debt-Servicing Capacity (Metrics Largely Unchanged in 2016) here CHICAGO, June 02 (Fitch) The financial leverage ratio (FLR) for Fitch Ratings' U.S. publicly traded life insurance universe was largely unchanged in 2016 at 26.2%, while publically traded Canadian insurers saw a modest increase in financial leverage to 21% in 2016, according to a new report from Fitch. On an individual company basis 40% of U.S. based life insurers examined by Fitch saw a decline in FLR, with an average decline of 1.5%. All three Canadian insurers, representing almost two-thirds of the market, saw an increase in FLR. "Given the uncertainty surrounding how the post-election bump in interest rates and subsequent Federal Reserve actions will affect the speed at which interest rates may increase, Fitch expects the life insurance industry may continue to take advantage of the current lower interest rate environment to strengthen its capital base or prefund upcoming maturities," said Douglas Meyer, Managing Director. Principal Financial Group and Prudential Financial Inc. had the largest declines in financial leverage with Principal declining 3.3% and Prudential dropping 2.0%. Protective Life Corporation and Reinsurance Group of America (RGA) had the largest increases in financial leverage, at 4.9% and 4.5%. Financial leverage at Canadian companies is generally lower than their American counterparts due to the use of larger amounts of preferred debt in their capital structure, which are assigned 100% equity credit per Fitch's criteria. "Interest coverage for U.S. based insurers declined during 2016 driven by continued pressure on earnings from headwinds associated with low interest rates, adverse mortality and a stronger U.S. dollar whereas Canadian insurers were impacted by elevated levels of debt associated with prefunding activities as well as continued earnings pressure, leading to a decline in fixed-charge coverage," added Meyer. The average interest and fixed charge improvement was 1.8x, whereas the average decrease was 1.5x. However, significantly more companies posted declines in coverage ratios. Going forward, Fitch expects that coverage ratios will remain pressured as low interest rates and credit losses continue to exert downward influences on earnings. During 2017 Fitch expects a modest reduction in financial leverage based on management intentions to reduce outstanding debt, along with the rising costs to issue debt. Interest coverage metrics are expected to remain under pressure, as insurers continue face earnings challenges. The report, "North American Life Insurers' Financial Leverage and Debt-Servicing Capacity," is available at or by clicking on the link. Contact: Douglas R. Baker Associate Director +1-312-368-3207 Fitch Ratings, Inc. 70 W. Madison St. Chicago IL, 60602 Douglas L Meyer, CFA Managing Director +1-312-368-2089 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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