Declining interest rates, volatile equity markets and unfavourable macroeconomic headwinds hampered investment income and asset-based fee income for publicly traded US life insurers in H1 2016, according to Fitch Ratings.
The ratings agency summarised GAAP results for US life insurance companies. Fitch said pretax operating income declined by 19% in the first half of 2016 for US publicly traded life insurers in Fitch's rated universe.
Dafina Dunmore, director at Fitch Ratings, said unfavorable mortality and competitive pricing continue to hurt individual and group life insurance segments while volatile financial markets impact the variable annuity, retirement plan and asset management segments.
Industry results were also adversely affected by large reserve adjustments, particularly for MetLife and Prudential Financial.
Fitch said the average aggregate operating return on equity declined to 10.4% in first-half 2016 compared with 13% in the prior-year period for Fitch's rated universe.
Fitch believes the likelihood of interest rates remaining lower for longer was enhanced by the UK vote to withdraw from the European Union (EU), which led to a material decline in interest rates in 2Q16. Fitch expects low reinvestment rates to continue to be an earnings headwind going into the second half of 2016.
