Life insurers set US industry capital raising pace

Capital-hungry US
insurers went to the capital markets in droves during 2009 and the
first quarter of 2010, raising a total of $38.6bn, reports rating
agency Fitch Ratings. This was more than the combined total of
$32.1bn raised in 2008 ($16.2bn) and 2007 ($18.9bn).

Equity accounted for $8.5bn (22%)
of capital raised during the five quarters while $30.1bn (78%) was
raised through fixed-interest securities of which senior notes
represented $29bn.

The largest amount of capital,
$15bn, was raised in the second quarter of 2009 when the capital
markets first showed signs of opening and insurers raced in, noted
Fitch.

The markets were effectively closed
in the first quarter of 2009 when only $1.4bn of capital was raised
across the insurance industry.

Capital raised by health insurers,
mortgage insurers, financial guarantors and insurance brokers was
excluded by Fitch in its study.

Also excluded was funding received
by Hartford Financial Services Group and Lincoln National Group
under the Troubled Asset Relief Program and federal assistance to
American International Group.

Leading the way were 20 life
insurers, accounting for $26bn, or 68%, of the total raised in the
five quarters.

If the five composite insurers with
a large life operation that raised capital are included, the figure
rises by $6.7bn to $32.7bn, or almost 85% of the total.

The largest sum raised by a life
insurer was $5.69bn by Prudential while Financial Hartford
Financial accounted for $4.16bn raised by composite insurers
while.

Life insurers’ need to replenish
depleted capital was far greater than general insurers’, explained
Fitch. Indicatively, the rating agency said life insurers’ filing
returns under Generally Accepted Accounting Principles
(GAAP) experienced an average 33% fall in reported equity capital
in 2008. General insurers filling under GAAP experienced an average
fall of 16%.

Fitch estimates that 35% of the
capital raised by life insurers was used to pre-fund debt
maturities and/or restructure the balance sheet, while 65% was
considered new debt to replace lost equity and strengthen financial
and liquidity positions.

Life insurers’ balance sheets ended 2009 in a healthier position
than they were in a year earlier with Fitch noting that on average,
stated GAAP equity rose 46% in 2009. However, this was primarily a
result of improved fair values of investments.

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