Press Release - MAY 23, 2018

Best’s Special Report: U.S. Life/Annuity Industry Posts 7.4% Decline in Pre-Tax Operating Earnings in 2017


CONTACTS:
 Bruno Caron
Financial Analyst
+1 908 439 2200, ext. 5144
bruno.caron@ambest.com

Edward Kohlberg
Associate Director
+1 908 439 2200, ext. 5664
edward.kohlberg@ambest.com
Christopher Sharkey
Manager, Public Relations
(908) 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
(908) 439 2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - MAY 23, 2018
The U.S. life/annuity industry recorded full-year statutory pre-tax net operating gains of $62.0 billion in 2017, a 7.4% decrease from $67.2 billion in the previous year, according to a new A.M. Best special report.

The Best’s Special Report, titled, “Year-End 2017 U.S. Life/Annuity Statutory Results Review,” notes that overall underwriting performance remained favorable in 2017, although lower net investment yields dampened margins. Headwinds to earnings growth persist due to diminishing investment portfolio yields, lower annuity sales and a mature ordinary life and accident and health market. Post-tax earnings decreased just 2.4% to $49.9 billion in 2017, owing primarily to elevated tax expenses in 2016 related to variable annuity (VA) business recaptures. However, net income results were favorable, up 7.5%, to $41.5 billion. Individual annuity direct written premiums declined again in 2017, down 22%, a larger decline than in 2016. Despite strong equity markets, variable annuity sales declined by 2% in 2017, as the product de-risking continued and as companies modified their business models to comply with the Department of Labor’s fiduciary rule.

Low interest rates and equity volatility remain the largest macroeconomic hurdles for the industry; these factors not only lead to spread compression due to lower investment income, but can also make it more difficult for direct writers and agents to sell products with less attractive features. Although A.M. Best expects interest rates to continue to rise through 2018, continued pressures on spread-based businesses still are anticipated.

Nevertheless, potential rate hikes could make fixed annuities more attractive for consumers; as a result, fixed annuity premiums could grow modestly.

Overall, A.M. Best expects mid-single digit growth for the life industry overall in 2018, on a mix of premiums and policy count growth. Ongoing innovation should also bolster growth, as companies learn to make effective use of digital capabilities for future sales. Tax expenses are likely to decline further in 2018 as well, due to the recent tax reform.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=273780 .

A.M. Best is the world’s oldest and most authoritative insurance rating and information source.