OLDWICK, N.J.–(BUSINESS WIRE)–The majority of U.S. life/annuity insurance companies posted favorable
operating results in 2018; however, statutory pre-tax operating gains
declined by 25%—the largest drop in five years—to $47.8 billion in 2018
from $63.7 billion in 2017, according to an AM Best special
report.
The new Best’s Special Report, titled, “Favorable 2018 Statutory
Results for Life/Annuity Industry,” states that the drop was driven by a
number of large dollar amount, one-off transactions (including
affiliated reinsurance and captive transactions), as well as
company-specific events at large organizations, which had a neutral
impact on enterprise-wide operating results. The notional amounts of
these transactions skewed AM Best’s statutory industry results, as AM
Best’s results do not capture captive or international affiliates’ data,
which would include offsets to these transactions.
After-tax earnings decreased just 14%, to $44.4 billion, as income taxes
declined nearly 75%, owing to tax reform. The industry’s effective tax
rate was 7%, compared with 19% in 2017. Statutory net income declined by
7% to $39.9 billion. Overall underwriting performance was favorable,
although margins were dampened by a decline in net investment gains.
Headwinds to earnings growth persist, due to diminishing investment
portfolio returns, rising technology spending, mature ordinary life and
accident and health markets and intensifying competition for consumer
wallet share.
Premiums increased and annuity sales improved as the drag from the
Department of Labor’s fiduciary rule changes has diminished. Individual
annuity direct premiums written reversed two years of declines by rising
nearly 14% over 2017. Group annuity premiums grew 9%, bolstered by
continued growth in pension risk transfer transactions during the year.
Fixed index annuity sales also were very strong for the industry.
Offsets to the macro-economic challenges L/A insurers faced in 2018
include favorable underwriting and prudent risk management, as a
realignment of product portfolios resulted in favorable statutory and
GAAP operating profitability. Furthermore, hedging remains prominent, to
help mitigate earnings and capital volatility driven by the
macro-environment and to manage risks inherent in embedded product
guarantees. However, AM Best remains wary given the volatility in
business lines that are more sensitive to interest rates and the equity
markets, as well as lines exposed to significant policyholder behavior
risks that could require additional reserves.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=286733.
AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.
Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.
Contacts
Edward Kohlberg
Director
+1 908 439 2200 ext.
5664
[email protected]
Richard Francis
Senior Financial Analyst
+1
908 439 2200, ext. 5152
[email protected]
Christopher Sharkey
Manager, Public Relations
+1
908 439 2200, ext. 5159
[email protected]
Jim Peavy
Director, Public Relations
+1 908
439 2200, ext. 5644
[email protected]
