(Bloomberg) -- More than half of insurers worldwide may be downgraded by Fitch Ratings this year on declines in the value of their investments backing policies.

“Many insurers are feeling significant pressures from the financial crisis,” the ratings firm said today in a statement. The industry has “diminished financial flexibility as capital markets remain closed to a number of companies.”

Insurance companies have reported profit declines and quarterly losses as the global economic slump pushes down the value of equities, corporate debt and mortgage-related investments. In the U.S., life insurers including Hartford Financial Services Group Inc. and Genworth Financial Inc. have applied for capital injections from Treasury as private investors shun industry stocks.

“Fitch expects the extent of downgrades to be greater among life insurers” than property-casualty companies, the rating firm said. “If provided, government-funded capital or other forms of financial support could potentially temper downward ratings actions.”

Insurers worldwide have posted more than $160 billion of losses and writedowns tied to the collapse of the U.S. mortgage market in the past two years. New York-based American International Group Inc., the insurer rescued by the U.S. last year, tops the list with about $61 billion.

Hartford and Richmond, Virginia-based Genworth were downgraded by Moody’s Investors Service and Standard & Poor’s in the last four months. MetLife Inc., the biggest U.S. life insurer, and No. 2 Prudential Financial Inc. had their outlooks changed to “negative” by Moody’s this month.

Stock Slump

Life insurers lost $77 billion in surplus in 2008, erasing six years of gains, on investment declines and costs guaranteeing retirement products, according to consulting firm Conning & Co. The KBW Insurance Index has declined by more than half in the last 12 months.

Corporate debt defaults are poised for a “significant” increase this year and may end up costing life insurers more than losses on securities linked to subprime, Alt-A and commercial mortgages, according to a research report this month by Barclays Plc analyst Andrew Frye.