The Road to Recovery : Survey Finds Some Industries Rolling Along but Others Are Stalled : INSURANCE

The insurance industry was rocked when the economy went downhill. But its problems won’t vanish when the economy picks up, and a shake-out may be in store.

Holders of high-risk, high-yield junk bonds, such as Los Angeles-based First Executive Corp. and First Capital Holdings, are in bankruptcy proceedings. Their main subsidiaries, Executive Life Insurance Co., Executive Life of New York, First Capital Insurance and Fidelity Bankers Life, have been seized by regulators following staggering investment losses.

Hard-hit portfolios of real estate may yet pull other life insurers into bankruptcy. And investment woes aren’t the only troubles facing insurers.

Life insurers face higher claims costs arising from the AIDS epidemic and costly new medical treatments for various ailments. Property and casualty companies have been hit by new, broader definitions of liability. And new legislation, such as California’s Proposition 103 aimed at rolling back auto insurance costs, has kept the industry in the public spotlight--where it’s harder to raise rates.

“The insurance industry has gone through a number of periods of turmoil,” said Joanne Morrissey, president and chief operating officer of Firemark Group, an insurance research firm. “But normally there are so many sectors of the industry that they don’t go through it all at the same time.”