Life insurance policyholders and investors should expect continued write-downs on insurance investment portfolios through the re-mainder of 2008 and into 2009, according to new research.

“Life insurance companies have a heightened exposure to debt and equity markets through their massive investment portfolios, and many of the popular variable annuity products carry investment risk to both consumers and insurers,” stated the report, titled “Guilt by Association or Real Trouble? Outlook for U.S. Life Insurers’ Profitability and Spending” from industry watchdog TowerGroup, based in Needham.

“The circumstances that brought AIG into the current financial crisis are not pervasive in the insurance industry, but AIG’s downfall has caused panic among policyholders and contributed to an ongoing erosion of investor and consumer confidence throughout the industry.”

Past Is Present

Economic events of the past year have caused rapid changes in consumer behavior and have diminished the overall attractiveness of some life and annuity insurance products, the report found.

These changes will force insurers to rapidly shift their product mix and refocus their distribution to remain competitive.

“Although the U.S. life insurance industry is not as deeply impacted by the current economic crisis as other segments of the financial services industry, the interconnectedness of banks, asset managers, brokerage firms and insurers themselves means it is not immune,” TowerGroup said.

On a positive note, TowerGroup said the industry overall remains well capitalized and is positioned to take advantage of new opportu-nities for products and services in the future.

In the short term, however, the firm said it expects profit pressures will cause life insurers to pull back on non-core initiatives, while cus-tomer-facing projects, product development, and risk management continue to garner full funding and support. (Banker & Tradesman)