A.M. Best Special Report

U.S. Life/Annuity Insurers Q3 2015 Earnings Stall

Impact felt from equity market volatility and weakening investment yield

OLDWICK, N.J., January 25, 2016—U.S. life/annuity insurance companies’ third-quarter 2015 statutory accounting results softened considerably when compared with prior quarters as pre-tax net operating gains fell to $3.7 billion from $18.5 billion in the previous quarter.

This is partially due to the impact of equity market volatility and weakening investment yield, according to a recent A.M. Best special report. The Best’s Special Report, titled, “Life/Annuity Insurers Third Quarter 2015 Earnings Stall From Poor Equity Market Showing,” states that 10 of the largest insurance groups, many of which had losses for the quarter, materially drove the quarterly earnings down.

Reasons varied, yet specific

While the reasons for the dip in earnings in third-quarter 2015 varied from company to company, some specific events included reserve increases, diminished mortality results, large reinsurance transactions and hedging geography, which often skews statutory reported results.

Despite some of the accounting and market-driven charges, A.M. Best is comfortable that underwriting results for the industry remain relatively solid due to prudent underwriting practices, bolstered enterprise risk management programs and mortality results, which remain within pricing. Although there are certain lines of business that continue to be a drag on
earnings for the industry due to poor underwriting, such as long-term care, price changes and reserve increases are expected to continue going forward.

10 of the largest insurance groups, many of which had losses for the quarter, materially drove the quarterly earnings down

Sales for the industry have seen little growth, which is reflected in a modest increase in direct premium income for 2015 over the same period in 2014. This is partially due to the mature nature of the industry and the challenges of reaching the middle market and millennials.

An Annuity Boost

Individual annuities sales have helped to bolster premiums for the industry and account for 25.9% of direct premiums written as of third-quarter 2015, with overall positive annuity spreads.

Ordinary and group life insurance remain core to the industry, contributing to 21.5% of direct premiums written, as of third-quarter 2015. While growth for ordinary and group life has been slower than annuity sales, A.M. Best expects it to remain a key driver of
long-term in-force profit for the industry.

A.M. Best views the industry as currently having generally adequate risk-adjusted capitalization, which is supported by the continued overall profitability.

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




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