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August 29, 2016 at 02:00 AM
WASHINGTON —The protracted low interest rate environment continues to wreak havoc with the earnings of U.S. publicly traded life insurers, with pretax operating income declining 19 percent for insurers tracked by Fitch Ratings Service in the first half of the year.
Fitch Ratings has just released its “ U.S. Life Insurance GAAP Results Dashboard (Midyear 2016)” report.
“Unfavorable mortality and competitive pricing continue to hurt individual and group life insurance segments,” Fitch Ratings Director Dafina Dunmore said in response to the report.
At the same time, volatile financial markets impacted the variable annuity, retirement plan and asset management segments, she said.
The low interest rate environment hampered investment income and asset-based fee income for publicly traded U.S. life insurers, the report said.
The report also noted that industry results were adversely affected by large reserve adjustments, particularly for MetLife, Inc. and Prudential Financial.
Average aggregate operating return on equity declined to 10.4 percent in the first-half of 2016 compared with 13 percent in the prior-year period for Fitch’s rated universe, the analysts said. More ominously, Fitch Rating analysts said they believe the likelihood of interest rates remaining low for longer was enhanced by the United Kingdom vote to withdraw from the European Union.
That vote led to a “material decline in interest rates in second-quarter 2016,” the analysts noted.
Specifically, investment income declined 3 percent in the first-half of 2016 compared with the prior year. That was driven by low reinvestment rates and reduced alternative investment income.
At the same time, hedging activity and the impact of new business provides a partial offset to low rates.
