AM Best has maintained its stable market outlook for the US life/annuity (L/A) industry in 2020, citing strong capitalisation and improved liquidity among carriers, along with a manageable regulatory environment.
The rating agency also highlighted companies’ measured approach to increasing investment risk as a positive factor in its stable outlook.
US L/A insurers have recorded modest but stable operating performance over the past year, and continue to benefit from favourable equity and credit markets.
AM Best believes these conditions have somewhat offset the persistent low interest rate environment, which has invariably weighed on outlooks across the global re/insurance industry.
As a result, L/A insurers have been able to build up their capital over time despite the net deferred tax asset hit that many companies took due to US tax reform.
Going forward, analysts recommended that companies will need to continue strengthening their capital to absorb the effects of changing economic and regulatory environments.
However, the long-running benign credit environment cannot last indefinitely, and future credit issues are likely to lead to ratings transitions and the need for additional required capital.
Upcoming elections and macro-economic events could drive significant changes in market temperament, AM Best warned.
Similarly, a shift back to more industry regulation, whether at the state or federal level, would not benefit L/A carriers, it said.
Other factors that influenced AM Best’s outlook include efforts to moderate the run-off in higher-yielding assets, prudent product de-risking, and a more streamlined approach to distribution by annuity writers.
Analysts also pointed to the ability of US L/A insurers to manage a potential economic turn, and their modest success in leveraging innovation.