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A.M. Best Special Report: Challenges Look Similar for U.S. Life and Annuity Industry But No Time for ComplacencyAlthough most U.S. life and annuity insurance companies begin 2016 facing many of the same challenges present in 2015, there is a heightened sense of urgency for owners, shareholders and policyholders to ensure companies are not continually increasing risks, according to a new A.M. Best special report. The 2016 Review & Preview Best's Special Report, titled, "Challenges Look Similar for U.S. Life & Annuity Industry But No Time for Complacency," cites a number of factors that will continue to pose hurdles; chief among them are historically low interest rates, marginal to declining premium growth and regulatory uncertainly. However, the report notes that life and annuity companies are facing new challenges as well, including the aggregation of longevity exposure from increasing life expectancy trends, the rise of cyber risk as a life "catastrophic" event and increasing investment risk from traditional and non-traditional asset classes. A.M. Best has maintained a stable outlook on the life and annuity industry for 2016. Most insurers currently maintain ample levels of risk-based capital to absorb expected and unexpected shocks. The industry is characterized by improved underlying financial results, improved asset/liability management capabilities and modest product features with minimal signs of a renewed "arms race" among competitors. The economy continues to pressure not only investment portfolio returns, but the profitability of many products, both spread-basedand those with underlying long-term interest rate assumptions. In addition, although the industry maintains minimal investment exposure to equities, such products with equity components are either less popular or are increasingly costly to hedge, especially in light of increased market volatility. For many legacy blocks to improve, most need either a significant return to higher rates and/or continued improvement in equity performance to support past underwriting mispricing. The report states that 2016 is likely to bring further divergence in global economic conditions and financial markets, though the U.S. economy should continue to grow modestly, driven largely by domestic demand in contrast with many emerging and mature economies. The year ahead is also expected to bring about change driven by evolving regulations, the potential for rising interest rates, increased leverage of new technologies, shifting consumer trends and other challenges. Additionally, competition continues to heat up from domestic and international sources. While traditional insurers continue to tweak pricing and benefits to maintain or grow market share, non-traditional, or alternative capital, patiently stands by waiting for a possible entry into the space. On the merger and acquisition front, the pace in 2016 should remain similar to that seen in 2015; however, while 2015 saw increased activity from foreign insurers entering the market, primarily Japanese life insurers, 2016 may be more represented by nontraditional players entering the space. To access a copy of this special report, which includes a breakdown of the life and annuity sector, along with 2015 rating trends, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=246253. A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2016 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. View source version on businesswire.com: http://www.businesswire.com/news/home/20160216005195/en/ |
