Best’s Market Segment Report: AM Best Revises Outlook on U.S. Life/Annuity Insurance Industry Back to Stable

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised its market segment outlook to stable from negative as the segment has experienced a number of improvements, including capital market gains and diversified earnings streams that helped offset the mortality impacts of the pandemic.

In its new Best’s Market Segment Report, “Market Segment Outlook: U.S. Life/Annuity,” AM Best states that underpinning the outlook revision are record levels of capitalization and improved earnings. Death claims have impacted earnings, but many leading companies have reported strong product sales in the second and third quarters of 2021. Additionally, credit losses in commercial mortgages and fixed-income assets have been muted and well below expectations. Insurers also have benefited from stronger risk management frameworks to shed legacy businesses in a robust transaction market.

The low interest rate environment remains, but has fueled the acquisitions of legacy block of business, including variable annuities, pension risk transfer blocks and interest rate-sensitive blocks. According to the report, current market dynamics are allowing for liability-side balance sheet restructuring. Insurers are benefitting from lower costs of capital and strong liquidity, which will position them well as the economy improves and if interest rates rise and inflation recedes.

Several pre-COVID-19 pandemic trends have accelerated, including the pivot by life/annuity insurers to fee-based business models that are less sensitive to capital market movements. Although shifts of this kind take time to materialize fully, the formation of new reinsurers, most often backed by private equity, has allowed for a more rapid flow of capital into the industry. This also has intensified the competition for available legacy books of business. AM Best views the additional capital as a positive, while also recognizing a still-developing business model that looks to riskier but with higher-yield assets.

Although the life/annuity segment faces hurdles heading into 2022, including continuing COVID-19 cases and death claims, as well as inflationary headwinds, AM Best’s view is that carriers will be able to address these challenges because of the improvements in capitalization, profitability and enterprise risk management practices.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=315385.

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=amboutlookla1221.

Leading AM Best analysts will review 2022 market segment outlooks for the U.S. insurance industry’s major segments and the global reinsurance industry in an online briefing scheduled for Thursday, Dec. 9, 2021 at 2:00 pm EST. To register for the briefing, please go to www.ambest.com/conferences/USMB2022.

To view current Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp.

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 London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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