NU Online News Service, May 6, 1:54 p.m. EST
Calling it a positive move, Fitch Ratings reported that U.S. insurers raised $38.6 billion in capital in 2009 through the first quarter of 2010.
The Fitch Insurance group said the industry's capital raises, which were highest in the life sector, addressed concerns regarding "companies' capitalization, liquidity position, and overall financial flexibility."
Fitch found the majority of the capital raising activity came in the second quarter of 2009 as the capital markets showed the first signs of opening up after being essentially closed for the latter part of 2008 and into the first quarter of 2009.
Of this capital, approximately 78 percent was in the form of fixed income securities, the majority of which were senior notes and 22 percent was common equity, Fitch reported.
The company said life insurers led the capital raising efforts for the industry with $26 billion, or 68 percent of the total amount, raised by all insurers.
When Fitch included multi-line insurers with large life operations, the total climbed to $32.7 billion, or 85 percent of the total. The rating firm noted that the capital position of U.S. life insurers was more adversely impacted during the financial crisis over the past two years compared to non-life insurers primarily due to greater investment risk and higher asset leverage, which drove greater investment losses, and secondarily from higher reserves requirements from variable annuity guarantees.
Fitch said it expects the life insurance industry's average 2010 financial leverage (excluding accumulated other comprehensive income [AOCI]) to increase modestly given new issuances in 2010 are partially offset by equity growth from improved net income, a primary result of easing realized investment losses.
The life insurance industry's financial leverage was relatively unchanged in 2009 at 23.3 percent compared with 2008 at 23 percent, although up from 2007 levels at 20.9 percent, Fitch found.
Earnings for life insurers may improve in 2010 relative to 2009 but remain below historical levels, said Fitch.
In contrast to the life insurance industry, non-life insurers reduced their financial leverage and increased their interest coverage in 2009, Fitch reported.
The company noted that more details on non-life insurers leverage and coverage, are in Fitch's special report, Property/Casualty Insurers' Financial Leverage and Debt-Servicing Capacity online at www.fitchratings.com.
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