While some long-term trends look favorable for the life insurance industry, short-term challenges will occupy the attention of senior management for the next two to three years due to the impact of the financial crisis, according to a new report by Conning Research and Consulting, Inc.

"The financial crisis has hit the life insurance industry hard," said Terence Martin, analyst at Conning Research & Consulting. "Our projected results for 2008 indicate a drop in ending surplus plus AVR of about $75 billion to $237 billion - a 24 percent decline from 2007. The volatile equity markets and interest rates are challenging the investment and hedging skills of insurers. Several large insurance companies, particularly individual annuity companies, have seen significant decreases in assets and surplus, resulting in an urgent need to raise capital at a time when capital markets are constrained."

The Conning Research report, "Life-Annuity Forecast & Analysis, Year-End 2008" is a semi-annual analysis of life insurance and annuity industry performance and metrics.

"There is a great deal of volatility surrounding our projections for 2008-2010," said Stephan Christiansen, director of research at Conning. "The setting of reserves, the recognition and timing of asset impairments, and the impact of hedging can each have significant effects on financial results. From the perspective of life insurers, the financial crisis began in earnest in the fourth quarter of 2008. So some of these issues may affect 2008 results, while the effect of others may be delayed until 2009 or 2010, and the timing and impact will vary by company. That said, 2008 will be a watershed year, and we predict a significant consolidation of the industry."