S&P Analyst Sees Slower VA Sales Growth

Upton said carriers have been pricing variable products "more realistically" than they were pricing the products a few years ago.

Still, he noted, "we do have a lot of companies on negative outlook because of the adverse effects the equity markets had on fee income for variable products."

He also noted that regulatory constraints on crediting rates and the continuing consequences of the credit quality crisis in 2002 and early 2003 have made it hard for carriers to maintain steady growth.

The strength of the current recovery of the equity markets is also unsure, Upton said.

"There could be a fragility to the recovery because of world events, the potential for a spike in interest rates and the credit quality of [carriers'] asset portfolios," Upton said.

S&P analyst Rodney Clark said S&P currently has 20% of the companies in the life insurance industry on negative outlook or negative watch. He also noted, however, that the 20% figure is an improvement over the 40% S&P reported as negative in the fourth quarter of 2003. Moreover, the ratio of S&P downgrades to upgrades in 2003 was 18 to 3, compared to 20 to 1 the year before, Clark reported. He said he expects that number to moderate even further this year.