Best’s Market Segment Report: US Life/Annuity Insurers to Experience Modest Growth, While Net Income Returns to Pre-Pandemic Levels

AM Best is projecting modest growth in capital & surplus of approximately $48 billion for the U.S. life/annuity (L/A) insurance industry over the combined 2024-2025 period, according to a new Best’s Market Segment Report.

The segment’s net income in 2025 is projected to exceed pre-pandemic levels and reach an estimated $51.1 billion in 2025, up from $37.9 billion just two years earlier. However, the L/A segment’s return on equity levels are expected to decline by 2.5 percentage points to an estimated 8.2% during that same timeframe.

According to AM Best’s annual Review & Preview report on this segment, the L/A industry’s balance sheets remain well-capitalized and continue to grow, as capital rose over the first three quarters of 2024, compared with year-end 2023. Last December, AM Best maintained its stable outlook on the segment, citing strong liquidity and capital positions, robust annuity sales and a prolonged benign credit environment.

“There are still some lingering concerns that include uncertainty and volatility in financial markets, risks in certain asset classes and legacy liabilities,” said Michael Porcelli, senior director, AM Best. “Overall, the equity markets performed strongly last year and credit spreads continued to shrink.”

The US L/A segment saw a slight increase of 0.8% in statutory capital and surplus through September 2024, compared to year-end 2023. Statutory net income was down 31% through the first nine months of 2024, compared with the same prior year period.

The report also notes that private equity/asset manager-owned insurers have grown in number and assets in recent year and now comprise nearly 10% of the L/A industry based on admitted assets. Based on indications, there is little expectation for this trend to slow, as owners maintain a large amount of committed capital to provide to these operating entities. “While many of these companies and their private equity/asset manager owners have been open to taking on pure life business for a more diversified mix, the annuity business has been far more common,” Porcelli said.

Despite rapid growth in premiums and balance sheets, operating results for private equity/asset manager-owned insurers have largely followed stock companies. Median returns on equity for these types of private equity/asset manager-owned insurers have mirrored those of stock companies since the beginning of more rapid growth in 2021, with results slightly below those achieved by the stock entities.

Going forward, AM Best continues to believe that the L/A segment maintains adequate liquidity as well as favorable capitalization to mitigate any near-term volatility. Some companies could find maintaining market share a challenge, as they attempt to meet changing consumer needs. Additionally, intensifying competition in the annuity market has the potential to lead to pricing pressure and the need for further product differentiation.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=351982.

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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