In highlights from A.M. Best’s First Monday series, A.M. Best Senior Financial Analyst Thomas Zitelli and Financial Analyst Frank Walko discuss how the U.S. Life/Health insurance market performed in 2014, exploring positive retirement market trends amid interest rate and reinvestment risks.
While the Life/Health industry demonstrated the ability to handle its business very well during a slow growth environment, it is still struggling to find top-line growth in its U.S. markets. “Direct premiums written within the U.S. L/H industry declined by roughly 1% in 2014, compared with about a 5% decline in 2013,” said Mr. Zitelli. “However… group and individual life insurance has shown premium growth, despite the low interest rate environment, rate increases, higher financing costs and lower consumer interest.”
A.M. Best remains concerned about the impact of reinvestment risk on the Life/Health sector. According to Mr. Walko, “Reinvestment risk places greater pressure on companies, particularly those with interest sensitive products, such as, fixed annuities, universal life or long-term care….It will further expose life and annuity carriers with large interest sensitive to liabilities to spread compression risk.”
Both analysts expect U.S. Life/Health carriers in 2015 to look for opportunities when they arise, but the competition for higher-yielding assets is intense with limited supply.