Life Insurance

Low Rates To Slow Pandemic Recovery

Life carriers look to alternative vehicles to transition to more capital-efficient models

New market analysis from S&P Global’s Life Insurance & Annuity Market report, authored by Tim Zawacki, measures post-pandemic growth going forward. Reprinted with permission. Access the full US Life Insurance and Annuity Market Report here.

July 20, 2021 — A transformation of the U.S. life insurance industry is underway, with an increasing number of primary carriers turning to the growing ranks of alternative asset manager-linked vehicles and more established counterparties to aid in their transitions to more capital-efficient business models.

Our newly released U.S. Life Insurance and Annuity Market report projects that a variety of dynamics will play more immediate roles in driving growth in life insurance, annuity, and accident and health premiums and considerations on a direct basis in the near term. But transactions used to effectuate individual carriers’ transformations will drive rates of growth net of reinsurance, and they will ultimately influence new business appetites over the course of our five-year

Fueled by growth in the ordinary life insurance line and recovery in ordinary individual annuity business from depressed pandemic-era activity in mid-2020, we project that direct premiums and considerations will rise by 2.6% in 2021. That represents more than 2x the rate of expansion achieved by the industry in 2020, but it is short of the more robust midsingle-digit growth in both 2018 and 2019. The effects of low interest rates will temper the sort of exuberance a rapidly recovering U.S. economy might otherwise encourage.

We project a year-over-year increase of 6.9% in direct ordinary individual annuity premiums and considerations in 2021 after business volume slipped by 5% in 2020. Year-over-year growth rates topped 10% in the fourth quarter of 2020 and the first quarter of 2021, and depressed writings in the second quarter of 2020 virtually assure a third-straight period of double-digit expansion. Comparisons become more challenging during the second half of 2021, however, and recent interest-rate trends do not support more aggressive crediting rates, which could pressure consumer demand for some products.

Unusual pandemic era results in certain business lines during 2020 also will make for surprisingly challenging comparisons in select business lines. We do not expect a repeat of the outsized growth in group annuity direct premiums and considerations that resulted from flows into stable-value products during the first quarter of 2020, for example. And while market participants had hoped that pension risk transfer momentum would carry into 2021 from a particularly active fourth quarter of 2020, activity fell sharply in the first quarter and low interest rates may not bode well for volume through the balance of the year.

Net of reinsurance, we project that premiums and considerations across all lines will rise by 4.4% in 2021 as compared with a retreat of nearly 8% in 2020. But our confidence level in this value is low as it is highly dependent upon when and how carriers pursuing solutions for large blocks of in-force business choose to execute reinsurance transactions. Structures that do not utilize U.S.-domiciled reinsurers that file annual statutory statements with the National Association of Insurance Commissioners have the effect of inflating ceding premiums without offsetting assumptions, artificially placing downward pressure on net business volumes. As a result, trends in direct and net writings have increasingly become disconnected from one another.

The effects of large reinsurance deals entered in recent years by cedants such as American International Group Inc., Jackson National Life Insurance Co., and Unum Group, to name a few prominent examples, have created material volatility in net growth trends in several business lines. With both the potential supply of — and demand for — in-force blocks of a growing array of business rapidly rising, highlighted by ongoing shifts to more capital-efficient strategies at Principal Financial Group Inc. and Prudential Financial Inc., we expect more of the same in 2021 and beyond. The planned separations of Jackson from Prudential PLC and the life and retirement segment from AIG add another compelling dynamic to an industry that no longer can be characterized as staid given that those companies ranked as the No. 1 and 2 sellers of U.S. individual annuities in 2020, according to LIMRA’s Secure Retirement Institute.

COVID-19 Drives Life Sales, Death Benefits

Accounting for reinsurance transactions is but one of multiple sources of ongoing uncertainty for the industry. How the pandemic progresses has material implications for macroeconomic trends, consumer demand, and, of particular importance in the context of life insurance, mortality rates. The ratio of death benefits on ordinary life policies to net premiums spiked by almost 10 percentage points to 55.5% in 2020 largely due to excess mortality from COVID-19. Although the ratio was higher as recently as 2016, it was the result of the denominator effect from an abnormally large amount of ceded premiums that year as opposed to an unusual number of deaths in the insured population.

Our outlook contemplates significant improvement in the relative level of death benefits in 2021 and a return to 2019’s more typical ratio to net premiums in 2022. Of the 598,624 deaths attributed to COVID-19 on death certificates in the United States logged through July 10, 2021, according to the U.S. Centers for Disease Control and Prevention, 64.3% occurred in 2020. But the highest weekly and monthly death tallies logged to date by the CDC occurred in January 2021.

Life industry death benefits surged in the first quarter of 2021 to the highest absolute level in any quarter in at least 20 years. The 29.3% year-over-year increase for that period was also a new high, topping the 28.8% growth rate in the fourth quarter of 2020.

New variants of the virus have created mounting concerns about the potential for future hospitalizations and deaths, but for the time being the industry should benefit from significantly more favorable mortality. Provisional CDC COVID-19 death counts showed a year-over-year percentage decline of more than two-thirds in the second quarter of 2021 and a reduction of more than three-quarters on a sequential basis.




Historical results referenced in the report and this article are based on the aggregation of data at the line-of-business level reported by U.S.-domiciled entities that file life statement blanks with the NAIC. The accident and health results and outlook are limited to business produced by life entities and reported on Exhibit 1 of annual statements. The analysis excludes the two entities with at least $100 million in total direct premiums and considerations in 2020 of which 90% or more originated from outside the United States: Assurant Inc.’s American Bankers Insurance Co. of Florida and MetLife Inc.’s American Life Insurance Co. (DE). The outlook contains a continued high level of risks and uncertainties pertaining to the pace and shape of the macroeconomic recovery, the duration of the low-interest rate environment and the manner in which the pandemic evolves. This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.