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December 11, 2003 at 07:00 PM
NU Online News Service, Dec. 11, 2003, 12:05 p.m. EST – Even though the worst may be over for U.S. life insurance companies, Standard & Poor’s Ratings Services, New York, maintains a negative outlook for the industry for 2004.[@@]
The recent credit deterioration in the sector appears to have faded, as evidenced by a drop in the number of company credit downgrades, S&P says. In addition, a slowly recovering stock market, improving interest rates and a strengthening corporate credit environment will help lift the industry, S&P says.
But the industry still is suffering reduced capital and earnings stemming from large investment losses, says Rodney Clark, an S&P director. Moreover, the increased cost of variable product guarantees and pension benefits, and the reduced level of fee income, also point to a downbeat outlook, he says.
In 2004, S&P expects to see more downgrades than upgrades in the life sector. So far in 2003, S&P has placed 31% of the U.S. life insurance companies it rates on a negative outlook or on CreditWatch.
“This is well improved from the 40% peak in early 2003,” says Clark. “So, while problems persist, a light at the end of the tunnel is becoming visible.”
Merger and acquisition activity in the industry appears to be picking up after a few slow years, a factor that could strengthen the outlook for the industry as a whole, S&P says.
The rating agency notes that there were 12 significant acquisitions or divestitures in the industry this year, including the recent announcement by a unit of AXA S.A., Paris, that it has agreed to acquire MONY Group Inc., New York.
