Best’s Market Segment Report: Shifting Tides in US Life/Annuity Industry Include Dropoff in Quality of Capital, Increase in Private Credit

OLDWICK, N.J.--(BUSINESS WIRE)--While the U.S. life/annuity (L/A) insurance industry remains financially healthy, it is experiencing a decline in the quality of its capital driven by insurers’ utilization of soft capital, offshore and affiliated reinsurance approaches, according to a new AM Best report.

The annual Review & Preview Best’s Market Segment Report, “U.S. Life and Annuity Industry Continues to Shift More Focus to Annuities,” notes that the segment’s top line growth, particularly in the annuity market, has been strong but it expected to moderate in the medium term. It’s a trend that may spur competition from new entrants vying to compete against long-established carriers amid a more consolidated distribution force and the onset of artificial intelligence (AI) driven initiatives.

In addition, the L/A segment’s investment portfolio has undergone a dramatic shift to increase its allocation to private credit, in part because of the similar duration of the overall liabilities underlying the assets, in addition to a search for increased yield. “This new investment landscape is largely untested from a large-scale credit or liquidity event,” said Erik Miller, senior director, AM Best.

According to the report, the growth in ceded reserves within the segment slowed to approximately 7%, based on 2025 estimates, compared with over 10% growth in each year from 2021 to 2024. It marks a trend that AM Best expects to continue.

Affiliated and offshore reinsurance is widely used by insurers to manage capital efficiency, risk diversification and earnings volatility, though companies backed by private equity or asset managers have heavily contributed to industry trends. “Offshore reinsurance is not viewed exclusively as a negative by AM Best; however, we expect improvement and governance and transparency, and improved collateralization will remain a focus,” Miller said.

The report notes that offshore jurisdictions like Bermuda and the Cayman Islands have positioned themselves as tax-neutral hubs with little to no corporate income tax, capital gains or withholdings on reinsurers. However, Bermuda has introduced a 15% corporate income tax for large enterprises, which narrows the gap between offshore and onshore tax benefits.

Among the report’s other findings:

• Ending capital and surplus for the L/A segment was $539 billion through the first three quarters of 2025, up 4% from the same prior-year period. This was driven by positive industry net income of $25 billion and strong realized gains of $14 billion, which are offset by lower asset valuation reserving.
• The L/A industry remains consistently profitable, and looking ahead, mortality is likely to continue its improving trend. Economic uncertainty remains, and rates are already seeing declines, as strong competition is likely to impact returns on new sales.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=362900.

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.

Copyright © 2026 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.