OLDWICK, N.J.--(BUSINESS WIRE)--AM Best is maintaining a negative market segment outlook on the U.S. life/annuity insurance segment for 2021, due predominantly to the ongoing economic and financial market uncertainty created by the COVID-19 pandemic.
In its new Best’s Market Segment Report, “Market Segment Outlook: U.S. Life Annuity,” AM Best notes that although mortality experience is clearly elevated due to the COVID-19 pandemic, life/annuity carriers have largely weathered the impact of higher death claims with limited impact on overall capitalization. Elevated mortality has been more evident at higher attained ages, which has impacted some companies more than others depending on product and market focus. Given the asset-intensive and interest-sensitive nature of the products sold in the life/annuity segment, the current environment poses even greater risks to company balance sheets from the potential economic and financial market impacts than from elevated mortality and morbidity risks.
Despite the recovery and recent stability in the financial markets, AM Best remains concerned about the potential future impact that “lower for even longer” interest rates and the ongoing COVID-driven economic downturn ultimately will have on life/annuity carriers’ financial results and balance sheets. Other factors supporting the negative outlook include:
- Expectations for intensifying spread compression from “lower for even longer” interest rates, together with narrowing credit spreads;
- Likelihood of reserve increases and/or asset adequacy reserve charges in response to lower long-term interest rate assumptions;
- Asset impairments likely in sectors heavily impacted by the current environment; and
- Top-line challenges further exacerbated by the ongoing pandemic.
AM Best’s view that life/annuity carriers were well-positioned to absorb the elevated mortality aspect of the current pandemic has been largely validated by the financial results of the segment year to date. Nonetheless, the ultimate impact on balance sheets from the economic downturn and the associated lower interest rates has yet to play out fully. Improvements to enterprise risk management (ERM) frameworks implemented over the last 12 years have gone largely untested–until now. While the end of the current pandemic and its associated economic impact is not yet in sight, early indications suggest that ERM frameworks have been effective so far—at least in terms of capital and liquidity management.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=303708.
To view a video with AM Best Managing Director Ken Frino about the U.S. life/annuity market segment outlook, please visit http://www.ambest.com/v.asp?v=amboutlookla1220.
A video interview with AM Best Chief Rating Officer Stefan Holzberger exploring AM Best’s 2021 outlooks on all the major U.S. insurance segments and the global reinsurance industry can be viewed at http://www.ambest.com/v.asp?v=outlooksoverview1220.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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