Life insurance companies will be under growing pressure to enhance their financial management system capabilities as they face changing financial reporting requirements and more extensive risk management challenges in 2008, according to insurance actuarial and risk management experts at Watson Wyatt Worldwide, a leading global consulting firm.

The financial reporting environment in the life insurance industry is in the midst of significant change, driven by the movements toward an international reporting standard and toward principles-based approaches to setting reserves and capital in the United States. In addition, companies are experiencing a wide range of information-related demands from regulators, rating agencies and shareholders, Watson Wyatt's experts noted.

"Life insurance companies are facing a host of pressures, and many are finding their current financial modeling software may soon be pushed to the limit," said Craig Buck, leader of the U.S. life actuarial practice in Watson Wyatt's insurance and financial services consulting group. "Increasingly, there is a competitive advantage for executives who are able to undertake a sophisticated analysis of their company's performance and explain it to stakeholders. This ability also can help increase risk-adjusted returns and identify trapped capital that has been dragging down performance. Many legacy systems are not able to provide this kind of insight."

At the same time regulations are changing, risk measurement and management demands are becoming more complex. Some companies may find that their existing systems are a source of risk that needs attention. But meeting these demands requires more than investment in technology - companies will need to invest in training their staff to fulfill the new reporting requirements and use the latest methodologies. All of this means higher costs.

"To be successful in this environment, companies need to deal in high volumes," Buck said. "The industry is searching for growth. One likely result of this will be more consolidation among life insurers in 2008. Many large companies are in a strong financial position and will continue to seek growth opportunities through acquisitions. Especially considering the weakness of the U.S. dollar, it would not be surprising to see more foreign insurers exploring the U.S. market."

About Watson Wyatt Worldwide

Watson Wyatt is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,000 associates in 31 countries and is located on the Web at http://www.watsonwyatt.com.