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U.S. life insurers continue to face low bond yields and are likely to see earnings growth pressured over the next two years as a result, according to Fitch Ratings. A sustained low-yield environment extending from current levels to beyond year-end 2015 would result in an increase in negative rating actions for firms exhibiting weaker earnings profiles and diminished reserve adequacy, Fitch said.

Fitch’s rate expectations recognize that rates ultimately should inch higher, which offsets low-yield concerns. Indicators of possible coming improvement in rates include the currently upward sloping yield curve, the Federal Reserve’s progress in withdrawing from quantitative easing, and Fitch’s belief that modest tightening of monetary policy will occur by the end of 2015. Therefore, while the risk of muted yields remains likely, Fitch believes that rates will be mostly an earnings headwind on life insurers over the near-to-medium term.

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