OREANDA-NEWS. Total statutory dividend capacity of U. S. life insurers benefited in 2016 from a change in New York legislation that restricts dividends that can be paid a life insurer's parent company, according to a new report from Fitch Ratings.

Based on Fitch's analysis of peer U. S. stock life insurers, statutory ordinary dividend capacity declined by 3% in 2016 to approximately $23.3 billion after remaining stable in 2015. The decline would have been greater if not for a change in New York state insurance law on dividend limitation from the 'lesser of' standard to the 'greater of' standard, beginning in 2016. Notwithstanding the decline in capacity, Fitch considers the absolute level to be strong.

In a typical insurance holding company structure in the U. S., relatively modest operating income is generated by the holding company itself, often in the form of income from investments held at the holding company. As a result, the majority of the holding company's financial obligations are funded by income generated by its various downstream operating companies that is upstreamed via dividend payments. To the extent that this dividend income is materially reduced or non-existent, the holding company's ability to fund its operations and pay its financial obligations is at risk.

Despite the decline in dividend capacity for the broader life insurance sector, aggregate dividend capacity increased for 2016 for the 14 large, publicly held life insurance companies used in a related study of statutory interest coverage. However, the mean statutory interest coverage for this group is expected to decline to approximately 3.7 times (x) in 2016 from approximately 4.0x in 2015, as some companies experienced significant declines in coverage.