A.M. Best Briefing: Rating Outlook Remains Stable For U.S. Life/Annuity Industry But Challenges Persist
December 22, 2015 by Best's News Service
Oldwick – A.M. Best is maintaining its stable outlook on the U.S. life/annuity industry for 2016, supported by the benign credit and interest rate environments and in the face of various challenges, in particular, the overall economic climate and its potential impact on interest rates, and, to a lesser extent, credit risk.
The Best’s Briefing, titled, “Rating Outlook Remains Stable For U.S. Life/Annuity Industry But Challenges Persist,” notes that generally, the life/annuity industry has seen absolute and risk-based levels of capitalization improve. In addition, asset impairments remain low and operating performance is up modestly as compared with 2014. A.M. Best notes that the life/annuity industry continues to experience stability despite current economic and industry challenges, and that those challenges remain similar to those faced heading into 2015.
However, a change to a positive outlook in the near-to-medium term remains unlikely because of these challenges. Slow premium growth for life products, driven in part by the industry’s inability to effectively access the middle market, remains an industry-wide dilemma, and when coupled with low interest rates, leads to moderate revenue and operating earnings. Conversely, a shift to a negative outlook could result from an overall negative transition in the U.S. economy, which, for example, could drive a sudden spike in interest rates. In addition, a material increase in credit risk resulting in investment impairments would also potentially drive an unfavorable change in outlook.
The stable outlook is partially supported by positive earnings for the industry, as underwriting results were within A.M. Best’s expectations. Although there has been some volatility within certain business lines, such as long-term care, A.M. Best continues to see generally adequate pricing of morbidity and mortality risk throughout the industry. While the low interest rate environment and equity market volatility have tempered net yield and earnings trends, the industry has made use of hedging to help manage these risks.
For the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=244722 .
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.
