A.M. Best Special Report: Debt Issuances Remain Relatively Modest At Publicly Traded Life/Annuity Insurers

OLDWICK, N.J.--(BUSINESS WIRE)-- Long-term debt obligations among a group of 21 publicly traded life/annuity insurers have declined 21% from 2010 through the third quarter of 2016, according to a new analysis from A.M. Best.

The latest Best’s Special Report, titled “Debt Issuances Remain Relatively Modest At Publicly Traded Life/Annuity Insurers,” also states that the decreasing level of debt obligations has lowered this group’s aggregate debt-to-capital ratio from 29.0% at year-end 2010 to 20.9% as of the third quarter in 2016.

This shift stems in part from life/annuity insurers taking advantage of the low interest rate environment by issuing debt with lower associated coupons and using the proceeds to extinguish older debt that has higher rates, thereby benefiting from lower financing costs. For example, 89% of these life/annuity insurers experienced a decline in their average weighted fixed coupon from the fourth quarter of 2009, compared with the third quarter of 2016.

However, the report also states that the U.S. economy is likely poised to see a volatile transition impacting the equity, interest rate, and credit markets upon which the life/annuity industry relies. Additional uncertainty around the regulatory environment, disruption from merger and acquisition activity, and slow premium growth for life and other products also are placing pressure on the industry.

While adequate interest expense coverage levels are shared by most of the publicly traded life/annuity insurers, macroeconomic volatility will likely continue to challenge the industry’s operating performance, emphasizing the need to balance financial leverage and debt obligations with the potential volatility of operating results.

To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=259407.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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Source: A.M. Best