Fitch: US Insurers May Benefit From Trump Deregulation

CHICAGO--(BUSINESS WIRE)-- Broad financial industry deregulation under the Trump administration would ease regulatory burdens for large insurance companies while macroeconomic trends resulting from shifting global and economic policies could have a significant impact on profitability, premium growth and investment performance, Fitch Ratings says.

Fitch does not expect the recent election results to have any immediate rating implications for the broader US insurance industry. Insurance remains primarily a state regulated industry with most activities falling outside the scope of the Federal government. Also, policy initiatives directly focused on the non-health insurance industry will not likely be a priority in the early part of President-elect Donald Trump's term. Financial deregulation however, which was promoted by the president-elect during his election campaign and is likely to be supported by the renewed Republican congress, could have multiple implications for insurers.

The potential repeal or amendment of the Dodd-Frank Act is a case in point. The designation of systemically important bank and non-bank financial institutions (SIFIs) falls under the Financial Stability Oversight Council (FSOC). SIFIs in the US face higher regulatory standards and three insurers - Prudential, AIG and MetLife - were designated as such in 2014. Fitch believes a Trump administration could promote a pullback on insurance SIFI designations via a less inclusive approach following changes in FSOC leadership or via changes to the Dodd-Frank act itself. MetLife won a court ruling in March that rescinded its SIFI designation and the Trump administration may choose not to follow through on an appeal.

The Federal Insurance Office - also created under Dodd-Frank - may be changed as well. The FIO could have a reduced or modified role under broader policy initiatives to lessen financial regulatory burden and to take a more US-focused approach generally. The result could reduce the prioritization of participating in international insurance regulatory initiatives.

How a Trump administration balances consumer protectionism with deregulation could have meaningful implications for insurers. Recently approved Department of Labor (DOL) rules that create a best interest fiduciary standard for investment advice provided for retirement accounts and annuities could also be reviewed. At the least, Fitch believes a delay in implementation from the current April 2017 target is likely. Fitch maintains that the DOL rules are ratings neutral for insurers, but reducing some provisions of the rules could limit increases in compliance costs that would result.

Tax code changes too could affect the insurance sector. Some life insurance products benefit from tax sheltering, so a simplification or changes to tax rules could have implications for the relative value of these products. Some insurers also shift business off-shore to take advantage of lower tax regimes; this could be de-incentivised under a lower corporate tax rate. Trump administration policy changes may incentivize insurers to keep business onshore via a combination of greater scrutiny of such practices under a more protectionist orientation, or incentives provided by tax changes designed to encourage repatriation.

Beyond potential regulatory and tax shifts, insurers will remain exposed to macroeconomic changes, both through their investment portfolios and owing to the connection between economic growth and premium growth. Future trends in interest rates and inflation in particular could have a significant impact, especially if the recent spike in treasury yields marks the beginning of a longer term trend. A scenario involving a steady increase in rates linked to higher growth and limited inflation would be credit positive for insurers, especially life insurers. But given the lack of specificity in Trump economic policies at this point and the related uncertainty, a scenario involving sharp spikes in rates or inflation would be disruptive for profitability and growth across all insurance sectors.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

View source version on businesswire.com: http://www.businesswire.com/news/home/20161121005743/en/

Fitch Ratings
Keith Buckley
Managing Director
Insurance
+1 312 368-3211
70 West Madison Street
Chicago, IL 60602
or
Justin Patrie, CFA
Fitch Wire
+1 646 582-4964
or
Media Relations:
Hannah James, New York, + 1 646-582-4947
Email: [email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Guelph Initiative Questions Whether OHIP Should Cover Psychotherapy
• Anderson Bradshaw Tax Consulting Expands Tax Resolution Focus as IRS Penalty Relief Changes Encourage Earlier Action
• T-Mobile Activates T-Satellite and Mobilizes Network Teams as Tropical Storm Lala Approaches Hawaiʻi