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Best's Market Segment Report: U.S. Fraternals Face a Difficult Growth Environment
[October 09, 2019]

Best's Market Segment Report: U.S. Fraternals Face a Difficult Growth Environment

Many market participants in the fraternal segment of the U.S. life insurance industry are struggling to stay relevant, given their limited financial resources and difficulties in growing membership, according to a new AM Best report.

A new Best's Market Segment Report, titled, "U.S. Fraternals Face a Difficult Growth Environment," states that this trend is reflected by the segment's premium growth, which was relatively flat in 2018, and has largely remained that way for nearly the last decade. AM Best believes fraternal insurance companies must move quickly on embracing newer technologies to the extent that they can or face the risk of falling behind.

Net premiums written (NPW) for the 44 U.S. life fraternal companies covered in this report have hovered around $10 billion in each of the past eight years. The fraternal population has attempted to remain competitive with the rest of the life/annuity segment by guaranteeing higher minimum interest rates on its individual annuity business, which elevates the fraternals' risk profiles and pressures operating results. Still, according to the report, the fraternal segment substantially improved operating results in 2018, recording an 85% increase in net income to $1.6 billion. The favorable operating results have allowed for consistent growth in the fraternal segment's capital and surplus. As a result, the segment has extra capacity even though its financial flexibility tends o be limited.

Many fraternals also have loosened their requirements in an effort to expand membership, broadening their target market to include more religious affiliations or demographic groups. Going forward, as certain demographic cohorts such as millennials become even more social-conscious and community-focused, fraternals have an opportunity to leverage their like-minded ideals. The report notes that AM Best focuses on premium growth, as opposed to membership numbers, as a key component of operating performance. Consolidation as a way to achieve scale may be more difficult among fraternals, owing to their differing charters. In addition, insurance industry technology will only continue to become more complex, as it increasingly moves toward a world of data analytics and real-time health monitoring devices. Many insurance companies are adopting analytics and monitoring as a way to improve their product underwriting. AM Best does not expect fraternal societies-with the exception of a couple of larger fraternal companies-to be first movers on innovation owing to their limited resources, and therefore likely will struggle to keep up with the fast changing environment. Ultimately, AM Best believes some organizations may enter into run-off, finding that keeping up with the costs of operating in the life insurance industry have become too difficult due to growing regulatory and innovation expenses.

To access the full copy of this market segment report, please visit

AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry. Visit for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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