The rating outlook for the
The stable rating outlook reflects the industry's strong balance sheet fundamentals, very strong liquidity, disciplined asset-liability matching, and operating performance that remain generally in line with rating expectations. Over the past year, expected deterioration in corporate credit exposure has been manageable in the context of the industry's capital and earnings.
"Key macroeconomic challenges expected to impact
While Fitch expects a modest increase in interest rates in 2017 under our base case scenario, we expect further decline in the industry's interest margins and reserve adequacy due to low reinvestment rates and limited crediting rate flexibility on legacy in-force business.
Credit-related investment losses are expected to increase somewhat in 2017 under our base case scenario but remain somewhat below historical averages and pricing levels. Key credit concerns that could lead to higher than expected losses include continued weak commodity prices, lower-than-expected economic growth, the impact of expected Fed rate hikes, and increasing geopolitical risk.
Sustained low interest rates would likely cause Fitch to revise its rating outlook to negative. This could occur within two to three years based on a 1.5-2.0 percentage point deterioration in the industry's GAAP ROE. Over the past year, the industry's average ROE has been in the 11%-12% range. Conversely, a rise in interest rates by 100-150 basis points could ease the pressure on our rating outlook.
"Bond market repricing post-election reflecting the possibility of higher inflation and stronger economic growth in 2017 has been positive for
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Source: Fitch Ratings