Ratings agency Standard & Poor's has downgraded its outlook for Irish Life & Permanent from stable to negative to reflect the impact of depressed investment markets on the group.
In a report yesterday, S&P said that, while its life assurance business remained very strongly capitalised, as a group its capital had been reduced by rapid balance sheet growth, including the TSB acquisition and share buy-backs.
"The negative outlook reflects the impact of depressed investment market conditions on the earnings outlook for the group's life assurance operations, which, given their predominance within the group, have hitherto provided two-thirds of group profitability," according to analyst, Ms Michelle Brennan.
Irish Life & Permanent shares weakened following publication of the report yesterday on a day when financial stocks were performing strongly.
The stock closed down three cents to €10.50. It had traded up to €10.60 earlier in the day.
The agency affirmed its A+/A-1 counterparty credit ratings for the group and its A+ insurer financial strength and counterparty credit ratings on Irish Life Assurance, its main subsidiary. "On a stand-alone basis, Irish Life benefits from very strong capitalisation, a strong business position and management's low appetite for risk.
"These factors are partially offset by a good but volatile operating performance, and Irish Life's strong reliance on the Irish economy," it added.
"Low investment market returns and reduced growth prospects are placing pressure on the margins achievable on new and existing life business for all life insurers, including Irish Life."
It notes that the majority of Irish Life's business is unit-linked, which has helped to protect the capital base.
But this does not mean that continued depressed investment markets would lower the profits earned from annual management fees.
"Lower growth prospects for the market as a whole are also likely to mean that future cost-savings from improved efficiency may need to be passed to policyholders in order to maintain market position."
Looking ahead, S&P stated that key rating factors would be the group's ability to balance ambitious growth objectives with the need to keep tight control on earnings quality and maintain its financial profile.
It would also need to demonstrate an insurance earnings performance consistent with current ratings despite the more difficult market conditions.
"The outlook could be revised to stable if group earnings demonstrate resilience in the slower economic environment and the restructuring initiatives convert into improved operating performance," according to Ms Brennan. Moody's has upgraded the short-term rating for the EBS building society from Prime-2 to Prime-1. Its long-term rating remains unchanged at A3.
The rating reflects a defensible franchise, low to moderate asset volatility and stable funding.
