A.M. Best’s recent ratings outlook for the U.S. life and annuity industries is stable headed into 2013, despite concerns with macroeconomic factors, particularly low interest rates.
The stable rating outlook reflects what A.M. Best calls “generally strong capital positions,” along with favorable GAAP and statutory operating earnings. Efforts to improve balance sheet fundamentals through enhanced risk management, coupled with de-risking initiatives, also contribute to the favorable outlook.
The results were published in the U.S. Life & Annuity Rating Outlook.
Life insurance company investment portfolios have held up well, A.M. Best noted. At the end of November 2012, roughly 93% of life/health companies had stable ratings outlooks; at the end of 2010, only about 75% of life/health companies had stable ratings outlooks.
But as more time elapses without gradual interest rate increases, the likelihood of a negative outlook increases.
And interest rates likely will persist at or near historically low levels for the foreseeable future, the report notes, further pressuring life insurers’ earnings.
The report went on to discuss how life insurers are counteracting the impact of low interest rates, and how companies that offered rich product guarantees are now paying a heavy price.
Asset portfolio valuations and how insurers are trying to capture yield.
Redundant reserve financing by life insurers using captive subsidiaries will continue to be analyzed by A.M. Best, according to the company, and the firm remains cautious about aggressive capital management.
Read A.M. Best’s conclusions and how ratings could move from stable to negative: Read/download the report here: A.M. Best U.S. Life & Annuity Rating Outlook