NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) today released its outlook report on the U.S. life insurance sector. KBRA’s outlook for the sector is stable. The following reasons support this view:
- Capital and surplus for the industry is at an all-time high while life insurers’ risk-adjusted capital ratios are tending to drift upward;
- Despite the pressures of low rates, earnings have generally been steady;
- Recent mergers and acquisitions have generally had a favorable credit impact on the sector;
- Life companies have maintained adequate spreads and margins without a considerable decline in the credit quality of asset portfolios;
- Over the last several years, enhanced revenue and cash flow diversification, elimination of asset concentration, reduced exposure to interest rate and market-based guarantees, and risk-focused decision-making have all taken center stage at many life insurance organizations.
KBRA believes the industry is stronger today compared with before the financial crisis and is more prepared than ever for the unexpected. This is generally due to a combination of enhanced ERM practices, management’s emphasis on profitability, implementation of strategies that benefit the long-term over the short run, and a greater focus on core operations.
Disruption will continue to be a major theme in 2017. Although it has been quite favorable for financial markets the last few months, the election of Donald Trump adds an additional layer of uncertainty to the sector. Typically, uncertainty and volatility go hand in hand, and the economy may be approaching an inflection point. At this time, KBRA believes companies are well positioned and can withstand another “perfect storm.”
As the insurance sector faces the latest concepts and challenges such as the internet of things, self-driving cars, telematics, cyber security, and artificial intelligence, it will likely require a refined approach to satisfy consumers across three divergent and discriminating demographics: baby boomers, generation X, and millennials. KBRA will monitor these trends to ensure that companies continue to address this rapidly changing landscape by maintaining prudent risk selection, articulating risk appetites, adhering to corporate risk tolerances, and targeting the optimal tradeoff between risk and reward.
Please click here to view the report.
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About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).