TEXT-Fitch on U.S. life insurers' investment portfolios

Oct 9 () - Link to Fitch Ratings' Report: Life Insurers' InvestmentPortfolios -- Results of Fitch's Year-End 2011 Survey

Oct 9 - Fitch Ratings today released a Special Report that examines theinvestment portfolios of U.S. life insurance companies at year-end 2011. Theresults of the report are based on statutory information Fitch compiles annuallyfrom an investment survey of its universe of rated life insurance entities.Fitch estimates these results represent approximately two-thirds of the totallife insurance industry's general account invested assets and include 16 of thelargest 20 life insurance groups in the U.S. based on total admitted assets.

In this report, Fitch analyzes each asset class within the life companies'investment portfolios. At year-end 2011, general account assets werepredominately invested in fixed-income securities, including bonds and mortgageloans. For the 31 insurance groups Fitch surveyed, fixed-income securities onaverage accounted for 83% of total invested assets. The remaining 17% wascomprised of other invested assets shown on Schedule BA of the statutorystatements at 5%, contract loans at 4%, cash at 3%, stock at 3%, derivatives at1% and real estate at 1%.

The bond portfolios of the companies surveyed were heavily weighted towardcorporates, which accounted for more than 60% of the total bond holdings. Thecredit quality of corporate bonds was generally high with 80% in the 'A'/'BBB'range. Approximately 11% of corporate securities were below investment-grade.Foreign government exposure was minimal at less than 1%. For the surveyeduniverse, structured securities represented 20% of the investment portfolio.This included agency pass throughs, commercial mortgage-backed securities(CMBS), non-agency RMBS, and asset-back securities (ABS).

Overall quality of commercial loan portfolios remains solid. Ninety-one percentof commercial loans had loan-to-values below 80% at year-end 2011, whichrepresents an improvement from 84% at year-end 2010. Debt service coverageratios (DSCR) were also strong; only 6% of commercial mortgage loans had DSCRsbelow 1.0x.

Common and preferred equity exposure in life insurers' general accountportfolios remains low. For most life companies, the bulk of their equity marketexposure is in non-guaranteed separate accounts tied to variable annuities andpension business. Companies also have additional exposure to asset classes suchas common equity and real estate through investments held in Schedule BA.

Cash and short-term investments as a percentage of total invested assetsremained unchanged from the prior year-end. Fitch had expected this to declinein 2011 as companies deployed their excess capital accumulated during thefinancial crisis. Fitch now believes many companies are holding cash due tolong-term interest rate uncertainty. The notable exception was AIG Life, whichheld 10% of invested assets in cash at year-end 2010 and began deploying it in2011. By year-end 2011, AIG Life's cash position fell to approximately 1% oftotal invested assets.

The report 'Life Insurers' Investment Portfolios: Results of Fitch's Year-end2011 Survey' dated Oct. 9, 2012, is available at '

' under'Insurance' and 'Special Reports'.

Additional information is available at '


Applicable Criteria and Related Research:--'Life Insurers -- Financial Leverage and Debt Servicing Capacity' (Sept. 4,2012)

Applicable Criteria and Related Research:Life Insurers' Financial Leverage and Debt Servicing Capacity(New York Ratings Team)

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