The heat is still on for U.S. life insurers, and won't dissipate until some time next year, according to Fitch Ratings.

The firm released its special report, "Mid-Year Update - U.S. Life Insurance Sector," last Friday, which asserts that the credit quality of U.S. life insurers continues to be negatively affected by the difficult conditions in the credit and equity markets and their impact on the industry's capital levels, earnings performance and liquidity position.

Fitch expects rating downgrades to continue to outnumber upgrades in the U.S. life insurance sector for the remainder of 2009 and into 2010. That said, rating actions taken in the fourth quarter of 2008 and the first half of 2009 have incorporated conservative estimates of expected future investment losses and an anemic economic recovery.

Consequently, Fitch expects the heightened level of downgrades in recent quarters will moderate in the second half of 2009. However, this assessment is subject to change if the economic and capital market environment deteriorates beyond expectations.

In the fourth quarter of 2008 and the first half of 2009, Fitch downgraded 42 U.S. life insurance groups. In comparison, Fitch downgraded 13 life groups in the prior three quarters (ending Sept. 30, 2008), and three life groups in the three quarters before that (ending Dec. 31, 2007).

"The dramatic deterioration in the financial markets has been a significant stress test for U.S. life insurers,"said Douglas Meyer, a managing director in Fitch's insurance group. "While the industry has performed reasonably well relative to many other financial services sectors, the impact on the capital, earnings and liquidity profile of many U.S. life insurers has been significant."

The full report is available under Insurance, then Special Reports, at

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