Standard & Poor's Ratings Services said Monday Hong Kong's insurance industry is enjoying a relatively stable period despite pressure on earnings, pressure from low interest rates and volatile investment markets on life insurers.

Given the industry's continued satisfactory growth, especially in the life insurance sector, in addition to resilience to unfavorable economic conditions over the past few years, it is unlikely that the ratings on Hong Kong's insurance companies will undergo any downward trend over the short term, the ratings services said.

In a new publication released Monday entitled "Hong Kong Insurance Outlook 2004-2005," the ratings agency notes that Hong Kong's economy is finally emerging from a protracted downturn characterized by intense competition, volatile investment markets, and a serious outbreak of Severe Acute Respiratory Syndrome.

"In the life insurance sector, relatively low penetration levels and increasing investor sophistication hold out the promise of growth," said Standard & Poor's credit analyst Ian Thompson, managing director for financial services ratings in the Asia-Pacific region.

"A recent recovery in the territory's investment markets augurs equally well for nonlife insurers although premium rates have started to soften in the face of competition after several years of relative profitability," said Thompson.

At a general level, providers have become more profit conscious and measurable indicators of performance, such as reserving practices in the nonlife insurance sector and cost controls in the life insurance sector, have improved, he believed.

He added that from a negative point of view, however, challenges remain. "Interest rates, while rising once more, remain low and equity markets, despite improvements, are still volatile," said Thompson.

"Perhaps the most obvious defect afflicting both sides of the broader industry in Hong Kong is the disparity between the larger and the smaller operators. Both the life and the nonlife sectors in the territory are overcrowded and smaller companies that cannot find their own niche may find themselves pushed out of the market," said Thompson.