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Life insurance confidence rose at its sharpest pace in three years in the third quarter of 2009, a survey published by Ernst & Young on Wednesday found.

This followed a revival in investor sentiment and stronger equity markets in the third quarter of this year, the quarterly survey showed.

Life insurance confidence rose from 53 index points in the previous quarter to its current level of 66, Ernst & Young said.

"This indicates that two-thirds of life insurers were satisfied with business conditions in the third quarter of 2009."

However, higher life insurance confidence did not seem to be in line with the present weak business fundamentals, Ernst & Young said.

"Whilst there has been some improvement in their financial positions, life insurers nevertheless continued to report contracting bottom-line profits, in line with continuing investment income contraction.

"Indeed, the rate of contraction in net profits worsened during the quarter," said Tim Rutherford, Ernst & Young's Life Insurance sector spokesman.

Overall inflows were growing far more moderately than they were in the previous four quarters.

"Premium income growth slowed sharply in the third quarter, and the expectation is that this would continue into the last quarter of 2009," he said.

Although risk premium growth was holding up strongly this was offset by slowing investment product inflows, high and sustained contract terminations and substantially slower new business premium growth, Rutherford said.

As a result of continued contractions in investment income, coupled with the weaker premium income trends, life insurers experienced continued pressure in the third quarter.

Furthermore, Rutherford said outflows remained stubbornly high.

"Whilst there was some improvement in the benefits growth trend, surrenders rose strongly during the quarter, even though they remain well below long-term average levels.

"Primarily, the rising surrenders caused the overall rise in outflows growth," he said.

The survey also found that despite contracting sales remuneration spending, life insurers continued to boost their in-house agent force.

According to Rutherford, this suggested one of two things: either agents were selling fewer policies overall, despite higher numbers of agents.

Alternatively, this could be an adjustment to the legislation which kicked in at the beginning of the year, whereby commission was paid on an 'as and when' basis, rather than on an upfront basis.

Premium growth was not contracting, but it had slowed quite noticeably since the first half of 2009.

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