Australia’s life insurance industry is recovering from a long stint in the doldrums, Standard & Poor’s (S&P) saying an improved operating environment will lead to sound earnings this year.

The ratings agency’s latest examination of the local life market says a strengthening of investment markets since early 2003 has boosted market stability and allowed life insurers to return to profitability.

S&P credit analyst Kate Thomson says the earning outlook for the sector is sound and consumer sentiment appears to be rebounding. “Anecdotal evidence suggest business inflows for investment-linked contracts have improved,” she said.

“Premiums in the risk segment of the market continue to grow at a solid level in 2004, after underpinning life company earnings in 2003 at a time when profits from investment-related products were restrained.”

Ms Thomson says more life insurers expect to report strong earnings for the year due to a number of factors, including improved investment income on shareholder and policyholder funds and reductions in funds management fees.