Best’s Market Segment Report

Top-Line Growth in U.S. Life/Annuity Industry Remains Elusive Despite Overall Stability

Building capital despite uncertainties

New market research from AM Best.

February 24, 2020 — OLDWICK, N.J.–(BUSINESS WIRE)–The U.S. life/annuity industry continued to perform well in 2019, building capital despite significant uncertainty in the macro-environment, but the ability for insurance companies to achieve top-line growth remains a top concern in 2020, according to AM Best’s 2020 Review/Preview market segment report.

The new Best’s Market Segment Report, titled, “2020 Review & Preview: U.S. Life/Annuity,” states that total direct premiums and deposits were up 6.1% through third-quarter 2019, compared with the same period in the prior year. The segment’s absolute capital and surplus rose 7.5% through Sept. 30, 2019, from the same period in 2018, driven by an increase in net income and a decline in stockholder dividends.

Additionally, pre-tax operating income was $38.8 billion, a 15% decline from the same 2018 period, and realized investment losses remained well-contained. The prolonged low interest rate environment continues to cause significant earnings headwinds for those insurers with large legacy interest-sensitive books needing to cover higher minimum rate guarantees. At the same time, new spread-based products require higher portfolio yields to remain competitive.

Larger Alternative Positions

According to the report, life insurers continued to take slightly larger positions in alternative strategies as a means to increase investment portfolio returns, which led to an 8.9% return in 2018, 1.1% higher than in 2014. Insurers are understandably embracing private and other illiquid assets for additional yield, particularly as product pricing often does not adjust as quickly as changes in interest rates. However, as a result, insurers have increased credit and liquidity risks in their portfolios. AM Best does not anticipate significant increases in credit impairments over the short to medium term, but the shift could result in meaningful negative capital developments should the overall environment begin to deteriorate.

life insurers continued to take slightly larger positions in alternative strategies as a means to increase investment portfolio returns, which led to an 8.9% return in 2018, 1.1% higher than in 2014...

Top-line growth remains key for most insurers. Consequently, there is a greater emphasis on customer engagement. The policyholder experience and the segment’s focus on financial wellness were large areas of change in 2019, and AM Best expects insurers to maintain that emphasis. Technology/insurtech remains an ongoing challenge, but still offers opportunities as companies look to innovate across their businesses to better mine existing data and develop methods to engage existing and potential policyholders better.

In 2020, AM Best expects to see tangible results from innovation for some carriers. Many companies already have implemented innovation somewhere along the delivery chain to maximize its contribution and are realizing work process efficiencies in their back office and distribution and underwriting efficiencies.

To access a copy of this market segment report, which also includes a look at the regulatory issues impacting the L/A industry along with product trends, please visit here.

To view a video interview with AM Best Senior Managing Director and Chief Rating Officer Stefan Holzberger on this report, please visit here.



AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit