Fitch Ratings has changed its fundamental sector outlook for U.S. life insurers to stable from negative, projecting better-than-expected operating performance and a benign credit environment to continue in 2018.
The rating agency believes that the U.S. life insurance sector will continue to see a limited number of rating changes in 2018, noting that most ratings in the U.S. life insurance sector are stable.
Fitch Managing Director Douglas Meyer acknowledged that interest margins on in-force business continue to suffer in a low interest rate environment, but he pointed out that higher-than-expected variable investment income and modest credit losses help offset the impact.
Based on its base scenario, the rating agency expects to see a modest increase in interest rates in 2018. However, low reinvestment rates and limited crediting rate flexibility on legacy in-force business could push portfolio investment yields, interest margins and reserve adequacy to further drop. Credit-related investment losses are expected to remain modest in 2018.
Fitch noted that the individual annuity market will continue to face challenges related to the U.S. Department of Labor's Conflict of Interest Rule, the implementation of which was delayed to July 1, 2019, from Jan. 1, 2018. The rating agency said it continues to view the business' fundamentals favorably, but uncertainty surrounding the rule, commonly known as the fiduciary rule, could pressure near-term sales.