Credit rating agency AM Best maintained its market segment outlook for the US life/annuity insurance segment at “stable,” citing the market’s strong capitalization, robust topline growth in core lines of businesses and stable profitability trends.
The life/annuity segment has benefitted from “favorable” interest rates in recent years after an extended period of low rates that forced companies to invest premiums in riskier, higher yielding assets. AM Best said in its Best’s Market Segment Report.
Favorable interest rates helped bolster topline trends, resulting in record-high sales of individual annuities, including fixed index annuity products and registered indexed-linked annuities sales.
Meanwhile, life insurance sales have moderated this year and will likely continue to do so next year amid a surge in sales during the COVID-19 pandemic. There is also growing market demand in the aging population market but products will need to continue to modernize, according to the report.
Further rate cutting could place some pressures on fixed product sales and expenses will likely increase amid advances in digitalization as companies seek to implement various initiatives.
“Many life/annuity insurers have demonstrated innovative and value-added product design, introducing products to gain or maintain market share,” AM Best associate director Kate Steffanelli said, adding that the popularity of hybrid annuities and variable annuities would likely continue due to their potential for growth and income.
That said, there is still a need for certain life/annuity insurers to reinsure legacy liabilities, tapping third party providers to better manage capital.
Private equity and asset manager-backed insurers play a role in funding the life/annuity segment’s growth by investing in technology, expanding distribution channels and improving operational efficiencies, AM Best said.
“The life/annuity segment is expected to experience a period of consolidation and growth in 2025,” AM Best director Jacqalene Lentz said. “The long-term outlook for the industry remains good, driven by the aging population and its need for financial security.”
