As worries over the solvency of pension funds spread throughout both the private and public sectors, the insurance industry is well situated, a new report from Fitch Ratings finds.

According to the report, the funded status of U.S. life and non-life insurers' defined benefit pensions plans improved in 2009 almost without exception. Of the 37 insurance companies that Fitch analyzed, the average funded status of these pension plans was 81% at year-end 2009, up from 73% at year-end 2008.

The rebound is attributable to a recovery in investment income, Fitch states.

“The improved 2009 funded status was due to two reasons; great improvement in investment returns on pension assets and significant pension plan sponsor contributions,” the report states. “However, 2010 investment returns do not appear to be as high as 2009 and may not improve much in 2011.”

To the latter point, Fitch notes that further significant contributions will still be needed if insurers are to meet the stepped up funding requirements of the Pension Protection Act of 2006 (The Act).

“Fitch believes that overall, the funding status required by The Act is obtainable," the report says. "Given the strong liquidity and cash flow position of most of the industry, Fitch does not anticipate the need to make additional cash contributions as a significant issue for the industry but could be a concern on a company specific basis.”

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Corrected November 15, 2010 at 11:51AM: yes