The US life/annuity (L/A) insurance industry is experiencing a decline in the quality of its capital driven by insurers’ utilisation of soft capital, offshore and affiliated reinsurance approaches, according to AM Best, despite the industry remaining financially healthy.
AM Best said the segment’s top line growth, particularly in the annuity market, has been strong but it expected to moderate in the medium term.
“It’s a trend that may spur competition from new entrants vying to compete against long-established carriers amid a more consolidated distribution force and the onset of artificial intelligence (AI) driven initiatives,” AM Best stated.
In addition, the L/A segment’s investment portfolio has undergone a dramatic shift to increase its allocation to private credit, in part because of the similar duration of the overall liabilities underlying the assets, in addition to a search for increased yield. “This new investment landscape is largely untested from a large-scale credit or liquidity event,” said Erik Miller, senior director, AM Best.
According to AM Best, the growth in ceded reserves within the segment slowed to approximately 7%, based on 2025 estimates, compared with over 10% growth in each year from 2021 to 2024. It marks a trend that AM Best expects to continue.
