Best’s Market Segment Report

U.S. Life/Annuity Insurance Market Outlook Held at Stable

Strong capitalization and improved liquidity, with manageable regulatory environment

December 10, 2019 — OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has maintained its market segment outlook for the U.S. life/annuity (L/A) industry at stable for 2020, citing strong capitalization and improved liquidity among carriers, along with a manageable regulatory environment. Companies’ measured approach to increasing investment risk also is a factor in the stable outlook.

A new Best’s Market Segment Report, “Market Segment Outlook: US Life/Annuity,” states that L/A insurers are recording modest but stable operating performance, and are continuing to benefit from favorable equity and credit markets, which have somewhat offset the persistent low interest rate environment. As a result, they have been able to build up their capital over time despite the net deferred tax asset hit many companies took due to U.S. tax reform. Going forward, insurers will need to continue strengthening their capital to absorb the effects of changing economic and regulatory environments.

The long-running benign credit environment cannot last indefinitely, and future credit issues will lead to ratings transitions and the need for additional required capital. Upcoming elections and macro-economic events can drive significant changes in market temperament. A meaningful shift back to more industry regulation, whether at the state or federal level, would not benefit L/A carriers.

Allocations Shifts

The report outlines other factors that are driving the stable market segment outlook, including as follows:

  • A thoughtful focus by L/A insurers on how allocation shifts to counteract declining portfolio yields and make products more attractive could impact balance sheets and liability profiles. Efforts include moderating the runoff in higher-yielding assets as they mature, shortening asset durations and prudent product de-risking;
  • Solid ability by the L/A industry to manage a potential economic turn, owing primarily to reduced exposures to lower-end NAIC Class 2 holdings;
  • Profitable results boosted by success of indexed-based products, tighter expense controls and growth of assets under management;
  • Modest success in leveraging innovation across the industry; and
  • A more streamlined approach to distribution by annuity writers, focusing particularly on a smaller base of key partners. Carriers have been able to do this because the industry has measurably improved its overall enterprise risk management framework and risk evaluation.

To access a full copy of the overall L/A market segment report, please visit here.

The long-running benign credit environment cannot last indefinitely, and future credit issues will lead to ratings transitions and the need for additional required capital...

To view a video with Ken Frino, managing director, about the U.S. L/A industry outlook, please visit here.

 

 

 

AM Best is a global credit rating agency, news publisher and data provider specializing in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.