Life - Articles - Modest improvement in US life companies

 Fitch Ratings anticipates modest improvement in US life profitability for the full year 2012. Results to date have been broadly in line with rating expectations, although Fitch's outlook recognizes uncertainties associated with the challenging macroeconomic environment. Ongoing low interest rates, equity market volatility, eurozone debt crisis contagion risk, and the slow economic recovery are key concerns.

 Modest earnings improvement in 2012 for US life insurers have been driven by active management of crediting rates on spread-based business, improved fee income driven by growth in assets, ongoing expense management, favourable investment results, and selected acquisitions.

 Average adjusted operating return on assets for a sample group of companies improve to .97% in 2012 from .88% in 2011. The improvement is based on annualized first quarter results, which benefited in part from a 12% increase in the S&P 500 index. Given the second-quarter decline in the equity markets and no let up in the other pressures, Fitch anticipates a more modest improvement in full-year results than first quarter results would indicate.

 Fitch believes insurers face an uphill battle in materially improving returns and earnings-based interest coverage metrics in 2012. While the impact of low rates has been manageable, Fitch notes that flexibility to further reduce crediting rates will be more limited in a sustained low rate environment.

 The full report, '2012 Earnings Outlook Mixed for US Life Insurers' is available at ' www.fitchratings.com