Publicly traded US life insurers reported solid operating profitability in the second quarter of 2024, with performance driven by strong equity markets and higher reinvestment yields, according to a report from Moody's.
The life insurance sector saw robust results in group benefits, group life, and disability, contributing to the overall positive financial outcomes for the quarter. Insurers have also experienced improved returns from alternative investments, although returns from real estate investments continue to lag.
Despite challenges in commercial real estate, particularly in office properties, insurers have managed these risks by modifying or extending mortgages or converting properties to real estate owned.
Moody's noted that life insurers have benefited from the high-interest rate environment, allowing them to invest new premiums and maturing investments in higher-yielding securities. This has led to increased investment income and overall portfolio yields.
However, a potential decline in interest rates in the second half of 2024 could pose challenges for spread-based products and those with high guarantees. Moody's expects insurers to counterbalance this risk by focusing on growth in less interest-sensitive product lines.
Key themes for Q2 2024 include an improvement in core profitability, which was bolstered by higher interest rates. Operating results for the quarter increased by 13% sequentially and 8% year-over-year. Life insurers benefited from the strong equity markets, better performance in alternative assets, and favorable mortality experience.
Disability insurance also performed well, with underwriting and lower claim severity contributing to the positive results, though Moody's anticipates a return to long-term target levels in the latter half of the year.
Pension risk transfer (PRT) activity remained solid during the quarter. Net income, however, was affected by noneconomic charges, which Moody's considers less impactful in their overall analysis.
Annuity sales reached a record high in the second quarter, with total sales amounting to $36 billion, marking a 29% year-over-year increase, according to Moody's. Although annuity sales were mostly flat sequentially, the growth was driven by fixed and variable annuity products, supported by higher interest rates and strong consumer spending in the first half of 2024.
The report also highlighted the continued growth of registered index-linked annuities (RILAs), driven by product innovation in this emerging segment of the market.
Alternative investment returns have started to recover, with net investment income increasing by 2% sequentially and 10% year-over-year, as reinvestment yields outpaced overall portfolio yields.
However, Moody's noted that while there has been some recovery in variable income from private equity, returns from real estate funds remain lower than expected. This trend is anticipated to persist into the second half of the year.
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