A.M. Best Special Report: Climate Remains Challenging; U.S. Government Steps In

Business Wire, Oct 6, 2008

OLDWICK, N.J. -- U.S. life and annuity companies face an increasingly complex macroeconomic climate, with negative operating and net income trends and continuing adverse capital market conditions through third quarter 2008. Amid failing financial institutions and impending U.S. government intervention, financial flexibility remains diminished. Significant realizable capital erosion remains a major risk, both from a ratings and an operating perspective.

* Six-month 2008 net income for the major U.S. publicly traded life and annuity companies included in this report was down 63% from a year earlier at $3.1 billion, while net operating income fell 16% to $7.1 billion.

* Sales of individual variable annuities through the first six months were down 12.5%, while sales of individual fixed annuities were up 34.2%.

* Investment risk remains heightened as asset prices continue to fall, and more write-downs are likely. Realized losses through June 30, 2008 were $7.9 billion.

* Merger and acquisition activity has slowed, a trend A.M. Best expects to continue in the near term.

* A.M. Best believes additional risks are emerging in the life and annuity sector. As companies' enterprise risk management programs become more sophisticated, some organizations have adopted more assertive capital management strategies and have increased their appetites for risk, especially publicly traded entities.

* A.M. Best's negative rating outlook for the U.S. life/health insurance industry (revised from stable as of September 18, 2008) means that, in the near to medium term, A.M. Best expects to take more negative rating actions than positive rating actions.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.