AM Best maintains stable outlook on US L/A industry

Written by Adam Cadle

28/11/2022

AM Best is maintaining a stable market segment outlook on the US life/annuity insurance industry for 2023, citing factors that include favourable earnings, strong liquidity profiles and strong levels of risk-adjusted capitalisation among carriers.

The ratings agency stated 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 unrealised 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,” it added.

AM Best said 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.”

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