A.M. Best has posted a stable rating outlook for the US life / annuity segment based on positive factors including a benign credit environment, improving economic conditions and high levels of reported risk-adjusted capitalisation.
Explaining the factors behind its stable outlook in more detail in a report published on 5 January 2015, A.M. Best said from a macro-economic view, the ratings agency said the U.S. economy is showing signs of moderate growth, an improved labour market and low inflation.
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The U.S. equity bull market has also continued unabated despite some passing bumps of volatility in 2014, with the Dow Jones Industrial Average up 12.6% year over year through Q3 2014, according to A.M. Best.
At the same time, it noted that global concerns are resurfacing about the financial health of the Eurozone, Japan, China and emerging markets.
For the near term, this likely will this likely will result in continued low interest rates in the United States, which is seen as a safe haven, said A.M. Best.
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By GlobalDataOn the product front, A.M. Best said the rationalization of benefits, movement of crediting rates closer to minimum guarantees, limits to consumer options and needed reductions in generous product features are some of the de-risking tactics life/annuity insurers have employed.
However, A.M. Best said while these moves are prudent, at some point the products offered will become unattractive.
The A.M. report, Life / Annuity Rating Outlook Still Stable, But Are Insurers Running Out of Options? said: "Certain variable annuities, single-premium whole life insurance and fixed-rate annuities already have seen sales hurt by the low interest rate environment."
Despite some adverse trends, such as low interest rates; marginal to declining premium growth; and regulatory uncertainty in terms of accounting, capital standards and product reserving; A.M. Best’s said its stable rating outlook reflects the life/annuity industry’s history of resilience in the face of such factors.
The A.M. report said: "A change to a positive rating outlook is unlikely in the near to medium term despite improving economic conditions, given ongoing challenges on the revenue side and continued overhang from the low interest rate environment."
