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Announcement:

Moody's: Outlook for US Life Insurance Industry revised to negative

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.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, S?o Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our website at www.moodys.com.

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.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: Outlook for US Life Insurance Industry revised to negative
No Related Data.

 

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