Despite equity market volatility, inflationary pressure and rapid interest rate hikes, U.S. life insurance and annuity writers posted a 17% increase in net income to $31.7 billion through third-quarter 2022, as compared with the same prior year period, driven mainly by a 7% rise in premium and annuity considerations, according to a new AM Best report.

The annual Review & Preview Best’s Market Segment Report, “US Life/Annuity Insurers Well-Positioned for 2023 Challenges,” states that the life/annuity segment remains well-capitalized to face ongoing economic uncertainty. Statutory capital and surplus dropped 2.1% through the first nine months of 2022 from year-end 2021, but the report notes that most companies had bolstered their balance sheets in previous years. Unrealized losses spiked significantly to $20.1 billion through third-quarter 2022, but in the near term and despite the capital decline, most insurers can hold those assets driving unrealized losses to maturity and will likely not be forced to sell to meet liquidity needs. AM Best expects full-year 2022 pre-tax net operating gains to close out in a favorable position, with capital and surplus to rebound in 2023 to above 2021 levels.

“Most companies survived the worst of the pandemic with operating results moving in tandem with the ebb and flow of pandemic-related mortality claims but remaining favorable for the most part,” said Michael Porcelli, senior director, AM Best. “Russia’s invasion of Ukraine, inflation, rising interest rates and the threat of a recession caused fluctuations in investment results over the year. However, premium growth continues as the need for protection was acutely highlighted.”

Other takeaways from the report include:

• Life/annuity companies are still experiencing higher-than-usual mortality rates but have characterized COVID-19 mortality as having an earnings impact as opposed to a balance sheet impact, suggesting no significant impacts to capital levels.
• Schedule BA assets have increased over the past five years, to 9.1% of total holdings at third-quarter 2022 from 6.3% in 2017, as insurers have become more comfortable underwriting private asset classes and developed a greater preference for structured asset classes and mortgage assets. More-effective financial modeling capabilities in the past decade have helped asset managers to capitalize on market dislocations and improve asset performance.
• Life/annuity writers sustained strong life insurance sales in the early part of 2022, driven primarily by sales by mutual life insurers. Many companies seized on the opportunity presented by the rising interest rate environment in 2022 to ramp up fixed-annuity production given the ability to offer higher crediting rates, which in many cases have risen at a much faster rate than competing bank CDs.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=329614.

A video discussion with Edward Kohlberg, director, AM Best, about this report is available at http://www.ambest.com/v.asp?v=ambrpla323.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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