S&P; Sees Insurer Problems for 2 Years

Standard and Poor’s Corp., the credit rating agency, said Monday that its outlook for the U.S. life and health insurance industry is negative over the next two years and that more companies may be downgraded if they cannot boost their cash reserves quickly.

The agency said that asset quality problems in some of the insurers’ real estate and high-yield bond portfolios deepened beyond its expectations and that some companies’ capital positions have weakened considerably.

The industry’s problems have been further exacerbated by the nation’s recession and “a significant loss of public confidence” from recent failures, S&P; said.

Several major insurers--including Executive Life Insurance Co., Executive Life Insurance Co. of New York, First Capital Life Insurance Co., Fidelity Bankers Life Insurance Co. and Monarch Life Insurance Co.--have been placed in state conservatorships as regulators move to protect policyholders.

S&P; said that regulators are spotlighting the insurance companies’ problems and that this is making policyholders even more apprehensive about the safety of their insurance policies.

“In S&P;’s view, the industry’s credit quality is more volatile today and, as a result, the pace of rating changes has accelerated,” the agency said.

The company expects further asset writedowns among insurers and more rating downgrades for companies that cannot quickly replenish capital. The agency said additional strains are expected from new tax legislation that will cost insurers $8 billion in the next five years.

“Consequently, S&P; expects downgrades to far exceed upgrades through 1991.