Moody's sanguine about life insurance

Strong earnings and sound investment portfolios will keep the life insurance industry stable this year, according to Moody’s Investors Service. The outlook for 2008 remains rosy for most life insurance companies, with 83% of the 57 companies surveyed being in stable condition, Moody’s vice president Laura Bazer said in a statement. The majority of insurance financial strength ratings are at an Aa. Product diversification and stable profitability kept the companies’ credit profiles afloat, especially through 2006 and most of 2007. Though the companies have opened themselves to more exposure to the capital markets through equity-based products, increased sales and profits on fixed life and annuity products helped make up where variable product revenues and earnings slid in the second half of 2007, according to the report. Throughout the rest of the year, carriers can reduce product risk, including those from guaranteed benefits, by redesigning their products to make them more effective or to use capital markets solutions to offload the risk, the report says. However, insurance companies’ credit ratings will be at risk if an economic slowdown discourages consumers from buying policies: Sales and premiums could slump, and individual annuities and institutional investment products could take the brunt of the blow, said the report. A recession would also impact revenues earnings and financial flexibility — an all too real possibility if the current market situation continues to worsen, according to the report.