Credit rating agency AM Best continues to hold a stable outlook for the US life and annuity (L/A) insurance sector, citing steady premium growth, strong capital positions, and solid risk-adjusted measures.
In its Best’s Market Segment Report, AM Best explains that L/A companies have expanded surplus and preserved sturdy balance sheet indicators during a period of accelerated growth.
The agency notes that although surrender activity has increased due to interest-rate movements and sales patterns, the sector’s disciplined approach to asset-liability alignment and liquidity stress testing has successfully contained these pressures.
AM Best also points out that the strength of capital levels is tempered by a gradual weakening in the quality of certain capital and asset components. The agency attributes this to greater reliance on reinsurance and offshore arrangements that support reserves on a more economic basis rather than under more conservative statutory measures. On the investment side, AM Best observes that companies seeking lower capital charges are creating balance sheets that, while efficient, may not be as sturdy.
Despite these considerations, AM Best states that operating performance across the industry remains solid. Senior Director Erik Miller stated: “While life sales have slowed in growth from the post-COVID bump, annuity sales continue to surge with record results in the last few years.
“However, growth may not be maintained at this record pace, and continued entrants into the market can potentially lead to much stronger competition and increased risk-taking on the product side in terms of guarantees and crediting rates and on the asset side in terms of seeking higher yield.”
AM Best further highlights that new market entrants and additional capital have helped insurers reposition older blocks of business, contributing to a shift toward offerings with reduced exposure.
The agency also emphasises a noticeable strengthening of enterprise risk management across the sector. AM Best notes that insurers are giving greater weight to asset-liability oversight and stress testing, using these tools to guide strategic decisions.
This shift, according to AM Best, reflects the need for an integrated approach that accounts for a wider array of exposures, such as reputation, cyber security, and vendor oversight, particularly as more companies operate across varied organisational structures and regulatory systems.
Overall, AM Best maintains that the US L/A industry is navigating current pressures effectively while upholding financial stability.
About the Author
