At the same time, the Rating Outlook on the
Key macroeconomic challenges impacting
Over the past several years,
The Stable Rating Outlook reflects Fitch's view that the impact of low interest rates remains manageable in the context of the industry's earnings and capital over the near term, and key credit metrics should largely remain consistent with current ratings.
Existing ratings continue to reflect the industry's strong balance sheet fundamentals, very strong liquidity, disciplined asset-liability matching, and operating performance that remain generally in line with rating expectations. To date, expected deterioration in corporate credit exposure from the energy sector has been manageable and credit impairments remain below long-term averages and product pricing assumptions.
However, should interest rates remain at current low levels or decline further, Fitch would likely revise its Rating Outlook to Negative on both the sector and a cross section of individual companies. Without an uptrend in interest rates, Fitch believes this could occur within two to three years on an expectation of deterioration in key profitability metrics and reserve adequacy. As one point of context, Fitch would view a further decline in the industry's GAAP operating return on equity (ROE) by 1.5 to 2.0 percentage points as a potential ratings trigger. Over the past year, the industry's average ROE has been in the 11%-12% range. The timing of any Rating Outlook revisions will be influenced by conditions in the credit and equity markets, which are key historical drivers of rating changes on life insurers.
Low interest rates is a negative scenario across all major product lines, but is particularly adverse for interest-sensitive products such as fixed annuities, universal life and long-term care. However, Fitch anticipates that the rating impact associated with low interest rates will not be uniform across the industry.
Fitch will provide further detail on our views of the industry in our annual outlook report to be published in
Additional information is available at 'www.fitchratings.com'.
Source: Fitch Ratings