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

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

Oct 9 - Fitch Ratings today released a Special Report that examines the investment portfolios of U.S. life insurance companies at year-end 2011. The results of the report are based on statutory information Fitch compiles annually from an investment survey of its universe of rated life insurance entities. Fitch estimates these results represent approximately two-thirds of the total life insurance industry's general account invested assets and include 16 of the largest 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 were predominately invested in fixed-income securities, including bonds and mortgage loans. For the 31 insurance groups Fitch surveyed, fixed-income securities on average accounted for 83% of total invested assets. The remaining 17% was comprised of other invested assets shown on Schedule BA of the statutory statements at 5%, contract loans at 4%, cash at 3%, stock at 3%, derivatives at 1% and real estate at 1%.

The bond portfolios of the companies surveyed were heavily weighted toward corporates, which accounted for more than 60% of the total bond holdings. The credit 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 surveyed universe, 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 percent of commercial loans had loan-to-values below 80% at year-end 2011, which represents an improvement from 84% at year-end 2010. Debt service coverage ratios (DSCR) were also strong; only 6% of commercial mortgage loans had DSCRs below 1.0x.

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

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

The report 'Life Insurers' Investment Portfolios: Results of Fitch's Year-end 2011 Survey' dated Oct. 9, 2012, is available at '

' under 'Insurance' and 'Special Reports'.

Additional information is available at '

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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)

((e-mail: pam.niimi@thomsonreuters.com; Reuters Messaging: pam.niimi.reuters.com@reuters.net; Tel:1-646-223-6330;))