Life and annuity insurers can look forward to more of the challenges that have beset them over the past few years, but opportunities are to be had, especially in the retirement world, ratings agency A.M. Best said Wednesday.
In its latest look at what lies ahead for the industry, the agency singled out low interest rates, regulatory uncertainty and slow premium growth as some of the predominant challenges facing insurers.
Life/annuity companies have seen investment margins remain relatively stable, which has helped to keep earnings "generally … resilient," it said.
Recommended For You
However, below-average returns on some legacy blocks of business, as well as other factors, are taking a toll on insurers.
In addition, the report said that although cuts in expenses at both corporate and product distribution levels have helped to maintain spreads, further cuts could hit growth where it hurts by having a negative impact on areas necessary to develop and sustain growth.
One area where insurers need to be wary is in the changes they are making to products to limit consumer options, reducing generous product features and sticking closer to minimum guarantees.
"While these moves are prudent, at some point the products offered will become too unattractive," the report said. "Certain variable annuities, single-premium whole life insurance and fixed-rate annuities already have seen sales hurt by the low-interest-rate environment."
On the bright side, the retirement market offers a variety of opportunities.
According to the report, "The Treasury's guidance to plan sponsors that allows the use of deferred income annuities in target date funds in retirement plans is a new opportunity for insurers in the retirement space. (Also), pension risk transfer will continue to be a growth market for companies with strong balance sheets, sophisticated asset management and well-developed systems capabilities."
Annuities offer the promise for the most growth, with indexed products seeing the most consumer demand, it said. Indexed annuities with living benefit features now account for approximately 75 percent of indexed annuity sales.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
