Aging populations and exchange rate shifts should make the coming years good years for life insurers, and especially for European and Canadian life insurers.

Joanne Smith, an analyst with Deutsche Asset Management, New York, an arm of Deutsche Bank A.G., Frankfurt am Main, Germany, made that prediction here at an international insurance conference organized by the American Council of Life Insurers, Washington, and the London arm of Electronic Data Systems Corp.

“This is an optimal time for the life industry, with plentiful opportunities,” Smith said.

Challenges facing the industry include increased capital requirements, changes in accounting rules, low interest rates, investor-owned life insurance and dependence on hedging programs that have yet to be tested by severe market downturns, Smith said.

But most life insurers have strong capital positions and strong earnings growth, and aging baby boomers around the world need more protection, asset accumulation and income distribution products, Smith said.

Smith’s list of companies that could use a combination of strong performance and strong home country currencies to make acquisitions includes Aegon N.V., The Hague, Netherlands; AXA S.A., Paris; ING Groep N.V., Amsterdam; Manulife Financial Corp., Toronto; and Sun Life Financial Inc., Toronto.

Likely acquisition targets include small companies, “transitional” companies, companies that have had major management changes, and companies that have struggled, Smith said.

In the variable annuity market, for example, any company with less than $30 billion in assets probably lacks the scale to stay in the VA business, Smith said.

Smith also talked about subprime mortgage investments.

Impairment charges on the investments should not pose significant risks for insurers unless losses rise from 40% to 50% of collateral, Smith said.