OLDWICK, N.J.–(BUSINESS WIRE)–AM Best is maintaining a stable market segment outlook on the U.S. life/annuity insurance industry for 2023, citing factors that include favorable earnings, strong liquidity profiles and strong levels of risk-adjusted capitalization among carriers.

In its new Best’s Market Segment Report, “Market Segment Outlook: U.S. Life/Annuity,” AM Best states that macroeconomic challenges such as inflation and capital markets volatility are expected to hamper profitability compared with prior years. Rising interest rates also have decreased the value of bond holdings, which has led to unrealized losses on fixed maturities. Uncertainty about the direction and pace of interest rate changes further demonstrates the need for insurers to maintain strong asset-liability matching programs and conduct routine rigorous stress testing of portfolios.

The report notes that despite some earnings volatility, capital markets gains and diversified earnings streams have helped offset the mortality impacts of COVID-19. Additionally, the industry has seen robust sales of new business in life and annuity products.

“Many leading companies generated record sales and reported solid earnings performance in the second and third quarters of the year; however, spiking interest rates have significantly impacted the third-quarter earnings of companies, particularly those with interest-sensitive liabilities,” said Jacqualene Lentz, director, AM Best. “Insurers will need to place a greater emphasis on liquidity management in the current environment of rising interest rates and potential credit losses.”

Although higher interest rates create an economic benefit owing to improved investment yields, other dynamics in the industry should continue to be monitored as well, according to the report. These include market-sensitive lapse rates, asset credit risk and the ongoing need to attract talent. The segment also may see more disruptions as competition evolves, business models change, automation and artificial intelligence advance, and environmental, social, and governance awareness grows.

“Insurers who are able to manage technological improvements and transform for the better have the potential to drive the industry forward,” said Edward Kohlberg, director, AM Best. “Managing risk accurately through uncertainty necessitates a thorough review of strategies to reveal vulnerabilities. Risk culture goes hand in hand with risk management.”

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=326389.

To view a video with AM Best Managing Director Ken Frino about the U.S. life/annuity insurance market segment outlook, please visit http://www.ambest.com/v.asp?v=amblaoutlook1122.

Leading AM Best analysts will review 2023 market segment outlooks for the U.S. insurance industry’s major segments, the global reinsurance industry and the delegated underwriting authority enterprises (DUAE) segment in an online briefing scheduled for Tuesday, Dec. 13, 2022, at 2 p.m. (EST). To register for the complimentary briefing, please go to www.ambest.com/conferences/USMB2023.

To view current Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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