Chicago — Fitch Ratings Inc. contends that balance sheet pressures for global insurance and reinsurance companies are becoming more severe as insurers experience greater unrealized market value losses, and take impairments, on their investment portfolios. As such, New York-based Fitch expects a noteworthy ramp up in such losses to be reported by many insurers in the third quarter.

Accordingly, the rater has revised its rating outlook to negative from stable for 12 insurance and reinsurance sectors globally, reflecting primarily the fall out from significant deterioration in the global financial markets, and its impact on insurers' balance sheets and financial flexibility. Fitch also is confirming its negative outlook on six insurance sectors, including the U.S. life insurance sector, which Fitch revised to negative from stable on September 29.

The negative outlooks reflect the significant falls in global credit and equity markets, and unprecedented market volatility and uncertainty. Of greatest concern to Fitch are declines in the market value of investment holdings that have led to significant declines in economic capitalization and profitability for many insurers. Fitch says ongoing market volatility means there is potential for significant further reductions in capital as market values further decline, and additional impairments are recognized. Declines in investment performance are impacting essentially all insurers, to varying degrees.

The negative outlooks also reflect the much-reduced financial flexibility that many insurers and financial institutions generally, have experienced under current capital market conditions. Limited capital markets access can be especially problematic if an insurer finds itself in a position of needing to raise capital to offset investment losses, but cannot, the company says.

Source: Fitch Ratings Inc.

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