Global ratings agency, AM Best has announced that its outlook for the US life/annuity and health segments remains at stable.
According to the agency, the US L/A insurers have heavily benefited from high levels of risk adjusted capitalization, as well as favorable liquidity profiles and boosted net yields owing to higher interest rates.
At the same time, this has also been counterbalanced by market-sensitive lapse rates, asset credit risks, and talent acquisition challenges.
Best stated that the number of rating actions across the life/health segment was down during H123, sitting at 127 actions compared to 150 from H122.
Across the health segment, two ratings were upgraded, while three were downgraded during H123, compared to six upgrades and three downgrades from the same period last year.
The agency highlighted how one of the upgrades was driven by an improved ERM program, with the other mostly being driven by improved capitalization. However, two of the three downgrades were mostly driven by weakened balance sheets due to operating losses, unrealized losses, as well as limited financial flexibility. The third downgrade came down to a deterioration in operating performance.
Meanwhile, the overall proportion of US L/A and health carriers with stable ICR outlooks decreased to 83.7% from 88.8% at year-end 2022.
Interestingly, the percentage of L/A carriers with a positive outlook increased to 4.7% from 3.3%, with negative switching to 8.3% from 5.3%, and under review to 3.3% from 2.6% from year-end 2022.
Looking into the road ahead for H223, Best stated that both inflation and the changing interest rate environment remain the top considerations.
The agency noted that L/A insurers overall, remain well positioned to navigate the challenges of ongoing economic uncertainty.
But, despite concerns surrounding the impact of unrealized losses on balance sheets, statutory capital is up 0.8% through Q223, compared to year-end 2022, for the companies in which Best has data for.
In addition, for health insurers, the resumption of Medicaid redetermination, and the ongoing normalization of utilization is likely to temper health insurers’ recent record earnings, stated Best.
The agency also highlighted how throughout the past several years, health insurers have strengthened their resilience and reinforced their ability to adjust a changing market and regulatory environment, which, combined with strengthened capital due to solid earnings during the COVID-19 pandemic, puts them in a good position to navigate the rest of the year.
