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Life insurance industry financially strong, ratings agency reports

Fitch says that life insurance firms are stable, even in a foundering economy

In a report this week, Fitch Ratings revealed that life insurance companies are better-positioned than other financial firms to withstand an economic downturn.

The reasons, Fitch says, are positive cash flow and a “stable liability profile” – in other words, life insurers have a predictable source of revenue and equally predictable expenses.

Nevertheless, losses on commercial real estate investments could potentially cost the life insurance industry a lot of money. CRE is projected to be one of the worst sectors of the economy in 2010; Fitch’s outlook is “negative” for all areas of CRE except healthcare. CRE fundamentals will be weak in the coming year due to declining rents and increasing vacancies, Fitch suggests.

The agency estimates that life insurers stand to lose between $15.7 billion and $19.1 billion on CRE investments. But insurers – a conservative group – are well-capitalized; capital across the industry was $228 billion in June of this year.

Life insurance companies’ positions are bolstered by “investment in higher credit quality assets, strong capital position and earnings,” Andrew Davidson of Fitch’s insurance ratings group said.

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Posted: November 19, 2009

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