A new report from AM Best, the credit rating agency, highlights notable changes in the US life and annuity sector.
According to AM Best, assets backing individual annuity products now represent more than 36% of total industry reserves, up from 32% prior to the 2008 financial crisis.
AM Best explains that this increase reflects a broader transition away from traditional defined-benefit retirement solutions toward models that depend more heavily on investment-driven returns.
AM Best further reports that, over the same period, the overall credit quality of these annuity reserves has weakened. On a weighted comparative basis, reserves are increasingly concentrated among insurers whose AM Best Credit Ratings are nearly two notches lower than they were historically.
In its Special Report, “Credit Quality of Annuity Reserves Declined from 2007 to 2025 on the Credit Ratings Scale,” AM Best states that about one-third of total annuity reserves are now held by 95 insurers whose Long-Term Issuer Credit Ratings have declined since 2007.
While publicly listed insurers account for nearly half of those reserves, AM Best notes that privately owned companies have experienced the most pronounced average downgrades.
AM Best also observes that many large insurers—particularly those backed by private equity firms or asset managers—have increasingly turned to offshore reinsurance arrangements. In some cases, these involve affiliated reinsurers and are used to enhance capital efficiency and achieve tax advantages.
However, AM Best cautions that such cross-border structures can introduce additional complexity and reduce transparency, potentially making risk evaluation more difficult.
According to AM Best, several factors have contributed to the overall deterioration in balance sheet strength across the sector since 2007.
These include increased reliance on reinsurance, a decline in the quality of reinsurance counterparties, reduced financial flexibility, pressure on internally generated capital, weakening asset quality, and challenges in effective asset-liability management.
AM Best also highlights the growing presence of private equity- and asset manager-backed insurers, which have expanded rapidly over the past five years as annuity demand surged.
These firms, AM Best explains, have leveraged higher yields from private credit investments to offer more competitive crediting rates and capture additional market share. Products such as multi-year guaranteed annuities (MYGAs) have played a central role, enabling insurers to benefit from interest rate spreads while aligning asset durations with long-term liabilities and managing duration exposure.
Looking ahead, AM Best suggests that slower industry growth could intensify competition, requiring insurers to win business from rivals rather than rely on expanding demand.
This may lead, AM Best concludes, to more aggressive pricing strategies, stronger bidding activity, and broader distribution capabilities offering a wider range of product solutions.
“This has been driven by newer entrants that have been assigned lower ratings, as well as established life/annuity companies that have been downgraded,” commented Erik Miller, Senior Director, AM Best.
“Interest rates have begun to decline, and new growth may begin to taper off,” added Jason Hopper, Associate Director, AM Best. “The MYGA space is already very competitive, market share is tighter, and we may be approaching a time when it may be too late for new entrants to capitalise.”
“This could either dampen earnings or require material investment in new capabilities, ultimately pressuring profitability and in turn, balance sheet strength,” Hopper said.
