Global credit ratings agency AM Best has maintained its stable outlook for the US life/annuity insurance segment, citing strong capitalisation across the industry, as well as robust top-line growth in core lines of business and consistent profitability trends.
According to analysts, the life/annuity segment has benefited from favourable interest rates in recent years after an extended period of low rates in which companies were forced to invest premiums in riskier, higher yielding assets, in order to meet policyholder guarantees.
The agency noted that further rate cutting could wind up placing pressure on sales of fixed products, but be beneficial towards persistency levels and assets under management in the near to medium term.
As well as this, with further advances being seen across digitalisation, expenses are likely to increase moderately as companies seek to implement various initiatives.
In addition, AM Best states that top-line trends continue to be bolstered by favorable interest rates, resulting in record-high sales of individual annuities, including fixed index annuity products and strong registered indexed-linked annuities (RILAs) sales.
Life insurance sales have also moderated throughout 2024 and are expected to continue doing so in 2025 following a surge in sales during the COVID-19 pandemic.
“Many life/annuity insurers have demonstrated innovative and value-added product design, introducing products to gain or maintain market share. The popularity of hybrid annuities, combining life insurance and annuity features, is likely to continue, as well as variable annuities with guaranteed minimum income benefits due to their potential for growth and income.,” commented Kate Steffanelli, associate director, AM Best.
Moreover, analysts also highlighted how private equity- and asset manager-backed insurers are playing a crucial role towards funding the life/annuity segment’s growth by investing in innovative technology, as well as expanding distribution channels and enhancing operational efficiencies.
Importantly, AM Best notes that there remains a need for some life/annuity insurers to reinsure legacy liabilities, taking advantage of third-party capability to more efficiently manage capital. It’s worth addressing that a material uptick in reinsurance activity has occurred in recent years to strengthen capital and manage reserves.
“The life/annuity segment is expected to experience a period of consolidation and growth in 2025. Companies may face challenges in the near term, but for those that have proven themselves nimble, there may be advantages. The long-term outlook for the industry remains good, driven by the aging population and its need for financial security,” said Jacqalene Lentz, director, AM Best.
