U.S. Life and Annuity Insurance Sector Analysis: Trends and Insights
A recent analysis by AM Best reveals that the U.S. life and annuity insurance sector maintains overall financial stability, though its capital structure shows signs of weakening. This shift results from increased reliance on softer capital forms and a rise in affiliated and offshore reinsurance arrangements.
According to the “US Life and Annuity Industry Continues to Shift More Focus to Annuities” report, while there is solid premium growth, especially within annuities, a medium-term deceleration is anticipated. The competitive landscape is evolving as new market entrants join established players, amidst ongoing consolidation in distribution and the rising implementation of AI-driven strategies.
Investment Strategies Shift
Investment strategies are transitioning towards a focus on private credit, aligning with the duration of liabilities to achieve higher returns. Erik Miller, Senior Director at AM Best, noted potential risks, stating, “This new investment landscape is largely untested from a large-scale credit or liquidity event,” which highlights possible vulnerabilities during stressed conditions.
Ceded reserves' growth is projected to decelerate to approximately 7% by 2025, a decline from the over 10% annual increases seen from 2021 to 2024, as capital management strategies adapt. The use of affiliated and offshore reinsurance structures enhances capital efficiency and risk mitigation, significantly influenced by private equity and asset managers.
Offshore Reinsurance and Governance
Offshore reinsurance remains viable according to AM Best, although it underscores the need for improved governance and transparency. “Offshore reinsurance is not viewed exclusively as a negative by AM Best; however, we expect improvement in governance and transparency, and improved collateralization will remain a focus,” Miller stated.
The report highlights that jurisdictions like Bermuda and the Cayman Islands provide tax advantages, but Bermuda’s introduction of a 15% corporate income tax for large multinationals narrows the fiscal gap between offshore and U.S.-based reinsurers.
The life and annuity sector reported an increase in capital and surplus to $539 billion for the first three quarters of 2025, reflecting a 4% rise from the previous year. This improvement was bolstered by $25 billion in industry net income and $14 billion in realized gains, though partially offset by decreased asset valuation reserves. While profitability remains stable with expectations for better mortality trends, economic uncertainty and falling interest rates could negatively affect returns on new business due to intensified competition.