The life insurance industry, whose standing Fitch ratings dropped last fall from stable to negative, has been shown in a new Fitch report to have taken a serious hit in statutory capital, due at least in part to the value of the insurers’ own investments. With many of those investments falling, the cost of debt rising, and obligations in the form of guarantees for variable annuities holding firm, insurance firms are hurting. But, of course, their problems aren’t due just to the equities in which they parked their, cash.
According to the report, Analyzing Changes in Statutory Capital for U.S. Life Insurers, companies’ statutory capital–the amount of statutory surplus, capital, and mandatory securities valuation reserve–has dropped substantially. The report looked at the largest 25 insurance groups in the U.S., which account for more than 80% of the industry’s total admitted assets, and the news isn’t cheery.
While some companies’ capital has actually increased, others’ has dropped by large margins, margins that would be even greater if not for corporate action, bailout funds, and capital relief transactions. AXA U.S. Insurance Group, for instance, saw its TAC decline by 52%. By far the predominant trend in the industry was down, since Fitch reports that only six of the 25 groups saw their reported TAC increase, while 19 saw theirs decline.
The report takes into account such adjustments as domicile state permitted/prescribed accounting practices, net capital contributions (which includes TARP money), and dividends paid.