Outlook negative for North American life insurers

Despite a strong recovery, downgrades are expected to continue to outpace upgrades for North American life insurers, says Standard & Poor’s.
The rating agency applauds the industry’s ability to bounce back from the investment drought and weak corporate credit environment of the past few years, but says lingering issues remain, not the least of which are persistently low interest rates.
“The challenges of the past have weakened the capital, earnings, and competitive positions of many companies,” the rater notes. “The result is that it will be much more difficult for management to confront the industry’s near-term challenges in changing regulation, technology and product risk.”
One trend that seems set to continue are the mergers that capped off 2003, including the mega-merger of Manulife and John Hancock. Most such transactions will have neutral to positive credit implications for purchasers, given the potential for economies of scale and market position strength. However capitalization remains a key concern.
In 2003, the industry saw 70 downgrades versus 15 upgrades. As well, the number of companies with a negative outlook remains high at 28, versus just eight companies with a positive outlook. There are currently less than 10 companies with “AAA” ratings, although more than 80 companies still enjoy “AA” or “A” ratings.