OREANDA-NEWS. Fitch Ratings has released a Special Report that details its examination of U.S. and Canadian life insurance companies' financial leverage, debt-servicing capacity and maturity distribution of outstanding debt.

In this report, Fitch analyzes key holding company credit metrics of publicly traded life insurance organizations rated by Fitch Ratings, examining changes in financial leverage and debt-servicing capacity from year-end 2011 to year-end 2014. The report compiles regulatory filing data from 18 publicly traded life insurers in Fitch's debt rating universe.

The North American life insurance industry continues to maintain balance sheet strength and generally improved debt-servicing capacity. With few exceptions U.S. life insurers' operating earnings showed modest improvement through 2014, and correspondingly, GAAP operating-based coverage metrics improved. Continued run-up in equity market valuations, if sustained, and an uptick in interest rates would be primary drivers of further improvements in coverage. Longer term, Fitch believes life insurers face an uphill battle to materially improve operating earnings-based interest coverage metrics due to a continuation of historically low interest rates and uncertainty tied to market returns. Additionally, a rapid uptick in interest could have a more immediate impact on capital and liquidity.

In aggregate, the financial leverage ratio (FLR) for Fitch's publicly traded U.S. life insurance universe declined slightly in 2014 to 27.1% from 27.4% the previous year. This was driven by an increase in shareholders' equity (excluding unrealized investment gains and losses on bond investments), which more than offset an increase in debt outstanding. Fitch notes that financial leverage for some companies was temporarily elevated at year-end 2014, reflecting prefunding of near-term maturities.

Fitch believes the industry faces minimal near-term refinancing risk, since only a modest portion of outstanding borrowings mature during in the remainder of 2015 and 2016. During 2014, USD5.1 billion of debt and preferred securities were issued in the U.S. and CAD2.3 billion in Canada. Issuance in Canada during 2014 was elevated compared with the same period in 2013. However, in the U.S., issuance was down from USD9 billion for the same period in 2013. In the U.S., all of the issuance was senior unsecured debt. In Canada, the split was 67% subordinated debt and 33% perpetual preferred.