Life Insurance & Annuity Markets

U.S. Life/Annuity Industry’s Net Income Cut Nearly In Half In 2020

Measuring the health of the industry

A.M. Best has released its First Look report, which collates data from 98% of the industry. Access the full report here.

OLDWICK, N.J., March 23, 2021—The U.S. life/annuity (L/A) insurance industry saw its net income cut nearly in half in 2020, to $24 billion from $45 billion. These preliminary results are detailed in a new Best’s Special Report, titled, “First Look: 12 Month 2020 Life/Annuity Financial Results,” and the data is derived from companies’ annual statutory statements received as of March 17, 2020, representing an estimated 98% of total industry premiums and annuity considerations.

According to the report, premiums and annuity considerations for the L/A industry declined 8.3%, as Jackson National Life entered into a coinsurance agreement with Athene Life Re and ceded $24.0 billion of individual annuities to Bermuda. Increases in the amortization of interest maintenance reserve and other income offset the decline, and resulted in a 4.7% drop in total income, compared with prior year. Due to the drop in income exceeding a 2.6% reduction in expenses, pretax net operating gain fell by 35.0% to $39.9 billion from the prior year. Income tax expense was also down in 2020, by $4.1 billion, but net realized capital losses increased by $3.9 billion, resulting in the drop of total industry net income to $24.0 billion.

First Look Report

AM Best’s First Look report provides early insight into the current financial state of the US life/annuity industry. The data in this report are from companies whose 2020 annual statutory statements were received as of March 17, 2021. These companies account for an estimated 98% of total industry premiums and annuity considerations and 98% of capital and surplus.

Due to the drop in income exceeding a 2.6% reduction in expenses, pretax net operating gain fell by 35.0% to $39.9 billion from the prior year...

In 2020, premiums and annuity considerations for the US life/annuity industry declined 8.3%, as Jackson National Life entered into a coinsurance agreement with Athene Life Re and ceded $24.0 billion of individual annuities to Bermuda. This decline was partially offset by increases in amortization of interest maintenance reserve and other income and resulted in the industry’s total income declining 4.8% from the prior year.

Total expenses decreased 2.6% in 2020, with a 9.6% increase in death and annuity benefits offset by a 5.8% decline in surrender and other incurred benefits, a 7.9% reduction in general and other expenses, and $5.0 billion less transferred to separate accounts.

Due to the drop in income exceeding the reduction in expenses, pretax net operating gain fell 35.0% from the prior year, to $39.9 billion. Income tax expense was also down, by $4.1 billion, but net realized capital losses increased by $3.9 billion, resulting in total industry net income of $24.0 billion for 2020, down 47.0% from 2019.

Capital and surplus for the industry grew 3.6% from the end of 2019, to $449.54 billion, as $52.8 billion of net income, change in unrealized gains, contributed capital, and other surplus gains were counterbalanced by $32.9 billion of stockholder dividends and change in asset valuation reserve. The industry’s bond holdings continued to decline in 2020, with cash and short-term investments up 28.0% and other invested assets up 21.9% from the end of 2019. Bond holdings declined from 73.6% of total cash and invested assets at December 31, 2016, to 70.4% at December 31, 2020, with the funds moving to support growth in mortgage loans (11.2% to 12.5%), other invested assets (6.3% to 8.1%), and cash and short-term investments (2.6% to 3.3%).

To access the full copy of this special report, please visit here.

 

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