Bad grades seen for insurers in '09

The new year promises to be a tough one for the U.S. life and health insurance sectors, according to an industry report card released today by Standard and Poor’s Ratings Services. The New York-based ratings agency said that it expects to take negative ratings or outlook actions on several life carriers over the next six months, but it didn’t identify any of the firms by name. Those companies are dealing with lower capital levels, increased investment or liability risk and weaker competitive positions. S&P initially revised its outlook to “negative,” from “stable,” in October, expecting poor market conditions and the likelihood of a prolonged period of weaker-than-expected economic conditions. However, ratings cuts likely will be lowered by just one or two notches. Furthermore, the ratings firm expects that life insurers will have a hard time maintaining their level of capital given the turbulent markets. Still, S&P thinks that the life industry is well-positioned to capture opportunities in the retirement market as the industry’s long-term fundamentals remain strongly intact. Health insurers, battered by a slumping economy and negative medical-trend developments, also face a negative outlook. A shrinking private sector and fewer growth opportunities in the public sector will put the squeeze on health carriers. Investments aren’t expected to be a key driver in 2009 for health carriers, but S&P said that it will scrutinize liquidity and capital management. It will also monitor any aggressive capital management strategies that raise leverage, with close attention to share buybacks, and mergers and acquisitions activity.