Hard times are on the horizon for insurers as commercial mortgage exposure haunts carriers and capital levels shrink, according to Fitch.
Hard times are on the horizon for insurers as commercial mortgage exposure haunts carriers and capital levels shrink, according to Doug Meyer, managing director of U.S. life operations for Fitch Ratings Inc. of New York.
“Companies went into 2008 with strong [risk-based-capital levels], well in excess of the triple-A [rating] level,” Mr. Meyer said yesterday at the Association for Insured Retirement Solutions’ (NAVA) marketing conference in New York. But that was then.
This year and next could test record defaults in corporate bonds, in which insurers invest. Similarly, the commercial-mortgage market will continue to weaken this year and in 2010, with delinquency rates on commercial-mortgage-backed securities expected to rise 2% in 2009, Mr. Meyer said.
Already hobbled by their variable annuities with guarantees — which were battered in the stock market — insurers will need an estimated $25 billion increase in capital and reserves in order to support their variable annuity business for the full 2008 year, he said.
Additionally, capital levels for carriers may be down by as much as 25% for 2008, Mr. Meyer said. Final numbers are released in March.
Mr. Meyer expects downgrades of one or two notches for the carriers.
“Financial flexibility is important,” he said. “In good times, it’s generally assumed to be there. In fact, sometimes it’s just not, and that’s been an issue for the life insurance industry this year.”