Near-Term Outlook Good For Life, Health Sectors, Rater Says

By Trevor Thomas

June 07, 2006 at 10:55 AM

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The second half of 2006 looks positive for the life and health insurance industries, according to Standard & Poor's Ratings Services.

In two recent analyses, S&P, New York, foresees a stable near-term outlook for life insurers as well as for health insurers and managed care organizations.

In the life sector, higher interest rates, coupled with "moderately" positive equity-market movements, create the prospect for double-digit increases in operating profits, S&P says.

The outlook is brightest for life insurance companies that are strong in product innovation, distribution, and enterprise risk management, the rating service said.

"Those that lack these key strengths will find themselves in compromised positions," said S&P credit analyst Rodney Clark.

Overall, the outlook for the U.S. life industry remains stable, Clark says. However, over the next 3 or so years, he expects low growth for the life insurance market, compounded by a highly competitive environment that will make it harder to realize higher profits.

For health insurers, annual medical cost increases are expected to be moderate to flat with last year's 8% rise, S&P predicts.

Health insurers "are generally pricing rationally, albeit a bit more competitively," explained S&P credit analyst Shellie Stoddard. "Because of continued consolidation in this sector, large companies are reaping the benefits of economies of scale and diversification and becoming adept at implementing best practices in many areas."

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