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Global Credit Research - 14 Sep 2012
New York, September 14, 2012 -- Moody's has changed its outlook for the US life insurance industry
to negative from stable, the rating agency says in its new "US
Life Insurance Industry Outlook," with low interest rates,
in particular, continuing to depress companies' earnings over
the next 12--18 months.
"The outlook change was driven largely by our expectation that interest
rates will remain in the low single digits for the next few years,"
says Vice President and author of the report Laura Bazer. "We
believe that low rates, along with below-trend economic growth
and prolonged volatility in the equity markets, will continue to
erode insurers' earnings and revenues, gradually weakening
their financial flexibility."
Spread compression is expected to continue to depress profits from spread
business, like fixed annuities and universal life, and from
long-tailed products, such as long-term care and long-term
disability income, Bazer says, while write-downs on
GAAP DAC, goodwill and other intangibles will become larger and
more frequent as the high interest rate assumptions baked into product
reserving become untenable.
Legacy variable annuities will also underperform due to volatility in
the equity markets stemming from the European debt crisis. Reserve
swings are expected to become more frequent and depress firms' earnings
and regulatory capital levels, while market volatility will also
make hedging more costly.
Additionally, persistent high unemployment and fiscal tightening
will constrain life insurers' top and bottom line growth.
"We expect high unemployment, weak consumer confidence and
potential sharp tax increases to negatively affect the sales of all life
products," Bazer says, while noting that sales of many
products are already falling.
Moody's research subscribers can access this report at: http://www.moodys.com/research/US-Life-Insurance-Industry-Outlook--PBC_145462.
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Laura Bazer
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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Moody's: Outlook for US Life Insurance Industry revised to negative
No Related Data.
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