US life/annuity insurance companies’ Q3 2015 statutory accounting results softened considerably compared to prior quarters as pre-tax net operating gains fell to $3.7bn from $18.5bn in the previous quarter, according to A.M. Best.
The ratings agency said this is partially due to the impact of equity market volatility and weakening investment yield.
In a report, Life/Annuity Insurers Third Quarter 2015 Earnings Stall From Poor Equity Market Showing, A.M. Best said ten of the largest insurance groups, many of which had losses for the quarter, materially drove the quarterly earnings down.
While the reasons for the dip in earnings in Q3 2015 varied from company to company, some specific events included reserve increases, diminished mortality results, large reinsurance transactions and hedging geography, which often skews statutory reported results.
Despite some of the accounting and market-driven charges, A.M. Best said it is comfortable that underwriting results for the industry remain relatively solid due to prudent underwriting practices, bolstered enterprise risk management programs and mortality results, which remain within pricing.
The ratings agency said: "Although there are certain lines of business that continue to be a drag on earnings for the industry due to poor underwriting, such as long-term care, price changes and reserve increases are expected to continue going forward."’
‘Little sales growth’
A.M. Best noted that sales for the US life / annuity sector have seen little growth, which is reflected in a modest increase in direct premium income for 2015 over the same period in 2014.
It said this is partially due to the mature nature of the industry and the challenges of reaching the middle market and millennials. Individual annuities sales have helped to bolster premiums for the industry and account for 25.9% of direct premiums written as of Q3 2015, with overall positive annuity spreads.
Ordinary and group life insurance remain core to the industry, contributing to 21.5% of direct premiums written, as of Q3 2015. While growth for ordinary and group life has been slower than annuity sales, A.M. Best expects it to remain a key driver of long-term in-force profit for the industry.
A.M. Best concluded that the US life / annuity sector currently has generally adequate risk-adjusted capitalization, which is supported by the continued overall profitability.