Life industry still faces tough time - S&P
The blood letting, it seems, may not be over for life insurance comapnies, credit rating agency Standard & Poors warns.
Tuesday, March 25th 2003, 9:40PM
by Sue Allen
The outlook for insurance companies in Australia and New Zealand remains "weak" according to an annual industry report just published by the credit ratings agency, Standard & Poors.
All S&P see on the horizon is another year of low investment returns something they say will inevitably continue to hit the performance of life insurance companies.
S&P director and credit analyst, Kate Thompson, says the life insurance industry will face the same problems it did last year with "volatile" investment markets and an uncertain economic environment.
"In 2002, the life industry experienced significant declines in global equity market values, which eroded capitalisation, reduced fee income as funds under management contracted, and lowered product revenue as consumers opted not to purchase additional investment products," she says.
But she says there may be a glimmer on the horizon for company’s in the fire and general area which feels less impact from falling equity values.
"Last year, a large number of insurance companies' ratings were lowered and several life ratings remain on CreditWatch highlighting ongoing difficulties faced by the industry in 2003," Thompson says.
AMP, Tower, and Royal & SunAlliance were all downgraded by S&P last year.
If things continue as they are, more credit downgrades could be on the cards, she warns.
Alliance Capital Management equities manager Andrew Bascand, says he thinks it will be year when companies will be seen to return to core business and for some there will be more write-downs on the value of their insurance books.
He says premiums have also started to rise to bring in more capital and it will be some years before customers see any intense competition between companies driving premiums down.
Tower’s acting chief executive, Keith Taylor, agrees that all indications are pointing towards another hard year for the industry.
"I think a lot of companies are operating reasonably well in the year to date but last year was particularly hard. I think, judging by the investment market so far this year, this is not going to be a year of strong recovery, but a better year than last year."
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