The fundamental sector outlook for U.S life re/insurers in 2019 is stable, with continued benign credit conditions, reduced pressure from low interest rates and strong balance sheet metrics supportive of ratings expectations, Fitch Ratings says.
However, Fitch’s stable sector outlook remains vulnerable to a big market shock, which it views as inevitable due to U.S rate hikes, global central bank tightening and global trade uncertainty.
Fitch expects interest rate pressures on interest and reserve margins to moderate in 2019 but to remain a headwind that will continue to factor into strategic and operational changes and merger and acquisition activity across the industry.
It’s also expected that industry financial performance in 2019 will include additional charges related to LTC reserve assumption updates and divestiture of non-core businesses.
Continued strong balance sheet metrics reflect very strong statutory capitalisation, good asset quality and very strong liquidity.
Fitch expects asset quality to remain relatively stable in 2019 with exposure to below investment-grade bonds below historic averages.
Life insurers continue to trade asset liquidity for yield to mitigate the impact of low reinvestment rates.
The shift to less liquid asset classes includes an increase in investment in private placements and leveraged loans, which may under-perform in a credit market downturn.
