Analysts at AM Best have warned that the US life and annuity (L/A) sector still faces significant challenges despite weathering the COVID-19 pandemic so far.
The rating agency noted that most US L/A companies remain well capitalised and have benefited from favorable mortality and morbidity experience, low credit impairments and rebounding equity markets.
Absolute capital and surplus (C&S) for this segment grew by approximately 5% through September 2020, benefiting from positive earnings and a change in unrealized capital gains.
However, net income for the L/A industry in the nine-month 2020 period fell by 55% from the same period of 2019 to $13.2 billion.
Low interest rates and the desire to hold more liquidity during the pandemic also drove an increase in debt issuance, as companies took advantage of the opportunity to refinance older issues that had been priced at higher interest rates.
Debt issuance for the L/A carriers amounted to nearly $35 billion through September 2020, AM Best said, which was significantly higher than the approximately $20 billion through September 2019.
Offsetting the macroeconomic challenges are favourable underwriting and evolving risk management practices, including the use of hedges, adjustments to crediting and discount rates, and a focus on technology to improve sales.
But AM Best also noted the ongoing operational challenges, particularly at a time when unemployment has been a drag on demand, despite a renewed interest in the need for life insurance on the part of consumers.
While companies in this market segment will need to focus a significant amount of attention to mitigating these risks and others, AM Best believes it is “critical” that L/A insurers leverage capabilities to support remote work and sales environments.