The SECURE Act, which is currently with the U.S. Senate after being passed in the U.S. House of Representatives, is expected to create additional market opportunities for the retirement and employee benefits segments of the U.S. life space, according to A.M. Best.
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) is legislation designed to improve retirement security in the states, and is now sat with Congress.
The U.S. Senate is currently reviewing SECURE Act as well as another similar piece of legislation, and financial services ratings agency A.M. Best has said that both bills look to promote retirement security in the country, and could offer wider market opportunities for in-plan annuities in the life and annuity segment, while also drive expansion of 401k plans in the smaller employer marketplace.
“In particular, a safe harbor provision would allow plan sponsors to select insurers to provide guaranteed income solutions, and then protect those sponsors from liability should participants or their beneficiaries suffer losses due to the insurer’s inability to satisfy its financial obligations under the contract terms,” explains A.M. Best.
The ratings agency notes that in the U.S. market, under half of plan sponsors offer in-plan retirement income options, with just a fifth offering a guaranteed income solution. The firm feels that increased awareness of lifetime income is vital to improving retirement security in the states. Adding that those life/annuity insurers with large employee benefit segments, alongside insurers that manage retirement assets, stand to benefit the most from the proposed legislation and subsequent changes.
“In addition, AM Best believes the ability to offer in-plan annuities as part of 401k plans will provide opportunities for the industry to grow its individual annuity business. However, the industry’s risk profile will increase due to the growing exposure to longevity risk, which has risen due to the rapid growth of the group pension risk transfer market in the United States,” says A.M. Best.
The ratings agency continues to note that while it’s uncertain how many small employers will adopt a plan, the growth potential is vast as around 36% of the U.S. workforce is employed by small businesses.
It’s worth noting that growth in the pension risk transfer market suggests a greater need for longevity reinsurance protection as plans look to offload some of their exposure and ensure financial security for their members.
