The North American life insurance industry is on ‘stable’ footing as it sprints into 2006, according to a Review and Outlook prepared by Fitch Ratings.
Actually, the industry has run an even time since 2002 when it was assigned the ‘stable’ outlook.
What is occurring and what will assist the life insurance segment in maintaining its stable footing is consolidation, according to Julie Burke, managing director in Fitch’s Chicago office.
Consolidation will result in “larger, more diverse companies” which “will be better able to survive in various economic and market environments,” she added during a recent conference call to discuss the report.
Because of the expected consolidation, transactional upgrades are expected, according to the report. Without consolidation, the report says that downgrades will continue to outpace upgrades over the next 12-18 months.
Scale is needed, she explained, because unit costs are driven down, and companies are able to exert more control in areas such as shelf space with distributors and investment management, she said. It will also make it possible for companies to invest more in technology, she continued.
While consolidation does not preclude the continued existence of niche companies, there will be challenges for those companies, according to Burke. Consequently, going forward, there could be a divergence in credit quality among insurers, she added.
The report also notes that the industry has tended to compete on product price and structure. Although this is not a bad thing, it continues, the tendency is to underprice and overstructure.
Other findings in the report are as follows: