General Insurance Article - Fitch reviews North American life sector financial leverage


 Fitch Ratings has released a special report that details its examination of US and Canadian life companies' financial leverage, debt-servicing capacity and maturity distribution of outstanding debt.

 In this report, Fitch analyzes key holding company financial factors of publicly traded life insurance organisations, examining changes in financial leverage and debt-servicing capacity for the last several years and thus far in 2012. The report compiles regulatory filing data from all publicly traded life insurers in Fitch's debt rating universe.

 The North American life insurance industry continues to maintain balance sheet strength and reasonable debt-servicing capacity that is within rating expectations. US life insurers' operating performance showed modest improvement thus far in 2012, and correspondingly GAAP earning-based interest coverage improved as well. However, Fitch believes the industry will be challenged to make further material improvements in coverage metrics in 2012 and 2013 due to macroeconomic headwinds.

 In aggregate, financial leverage for Fitch's publicly traded life insurance universe has increased since 2009. This has been driven by increased debt issuance, a decline in shareholders' equity (excluding unrealized investment gains and losses), a change in Fitch's hybrid equity-credit criteria, and a change in GAAP accounting for deferred acquisition costs.

 Fitch believes the industry faces minimal near-term refinancing risk since only a modest portion of outstanding borrowings mature in the second half of 2012 and 2013. Issuance of long-dated and perpetual securities in July and August 2012, primarily to prefund upcoming maturities, has been robust.

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