A.M. Best Special Report: U.S. Life/Annuity Insurers Shifting Gears In Volatile Economic Environment
February 26, 2012 by Andrew Edelsberg
press release
Feb. 22, 2012, 10:52 a.m. EST
OLDWICK, N.J., Feb 22, 2012 (BUSINESS WIRE) — The U.S. life/annuity industry battled continuing macroeconomic challenges in 2011, emerging relatively unscathed with modest investment impairments and a return to fairly large unrealized gains in their fixed-income portfolios. As indicated in A.M. Best Co.’s “Life/Annuity Review & Preview 2012” report, the year’s results also were marked by strong regulatory capital, favorable operating earnings and continued efforts to improve balance sheet fundamentals through more prudent liquidity and capital management. Low interest rates will maintain pressure on life insurers’ earnings, hovering at or near historical lows until at least 2014. However, A.M. Best expects favorable earnings trends to persist, despite a slow rate of growth.
— Life/annuity companies with more diversified sources of earnings, especially those whose earnings reflect business that is less susceptible to movements in interest rates or domestic equity markets, are expected to fare better.
— The volatile U.S. equity market and low interest rates have increased hedging costs and triggered additional reserve increases for equity-sensitive product lines.
— Some insurers have pared positions in distressed asset classes, while others have shouldered more risk in an “enhanced yield” strategy that bears close monitoring.
— Carriers have pursued a range of variable annuity strategies, from modest product tweaks to completely exiting the market, while others have announced they are curtailing or de-emphasizing lines such as fixed annuities, banking, Medicare supplement, group medical and long-term care.
— A.M. Best views favorably key industry players’ re-emphasis on whole life insurance, whose stable, long-term earnings help companies’ credit profiles.
— The adoption of new retrospective accounting for deferred acquisition costs will have a meaningful but manageable one-time impact on GAAP shareholders’ equity.
To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/bestweekreports.asp?rt=ir .
To view a video, please visit http://www.ambest.com/v.asp?v=rpla12 .
Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com .
Copyright (C) 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
SOURCE: A.M. Best Co.
A.M. Best Co.
Andrew Edelsberg, 908-439-2200, ext. 5182
Vice President
or
Stephen Irwin, 908-439-2200, ext. 5454
Vice President
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
Copyright Business Wire 2012
