OLDWICK, N.J.--(BUSINESS WIRE)--The U.S. life insurance/annuity industry posted favorable after-tax results in 2015 despite a number of headwinds, including low interest rates and soft equity markets. Full-year statutory earnings for the U.S. life insurance industry increased 6.7% year over year, according to a new A.M. Best special report. Fourth-quarter 2015 earnings were strong, returning to historical norms following the third quarter, when earnings fell to their lowest point compared with the previous 15 quarters. Earnings for the industry continue to be dampened by the persistent low interest rate environment and lack of substantial organic growth given the mature nature of the industry.
The Best Special Report, titled, “Year-End 2015 U.S. Life/Annuity Statutory Results Review,” states that pre-tax net operating earnings for the life/ annuity industry increased 9.9% in 2015, reaching $54.9 billion. While the results were lower than what was recorded in 2013, when the industry achieved a five-year high of $65.8 billion, the 2015 results were solid and compared favorably to earlier years. The year-over-year earnings improvement was driven by a variety of factors, primarily aided by increased pre-tax earnings in the ordinary life and group annuity and health product lines. When earnings were analyzed on a company-by-company basis, the 25 largest groups accounted for three-fifths of total industry earnings.
Overall operating return on equity for 2015 was 11.9%, a slight increase over the 11.2% reported in 2014. Invested assets grew 2%, but the impact of the extended low interest rate environment resulted in a gradual decline in net investment income and net yield, which decreased 60 basis points.
The report notes that the U.S. economic forecast for growth is expected to be below what is considered enough to boost up interest rates and inflation when considering the number of people who will be entering the workforce during the foreseeable future.
Over the near term, A.M. Best continues to believe that the most beneficial environment from the perspective of earnings improvement would be a slow, steady rise in interest rates. While the benefits of any orderly increase in interest rates may vary from company to company depending on its mix of business, virtually all companies would realize an improvement in earnings. As long as interest rates eventually move higher—save for a fast and steep spike in rates—the profitability of the interest-sensitive business on the books of life/annuity writers should improve.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=248781.
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