A panel of executives from S&P discussed the challenges and opportunities facing the industry and several factors driving the outlook for the industry in this COVID-19 environment during the 2021 American Council of Life Insurers’ (ACLI) virtual Annual Meeting.
Kevin Ahern, managing director, North American Insurance Ratings, S&P Global Ratings, moderated the discussion, which featured Katilyn Pulcher, associate director, S&P Global Ratings, and Carmi Margalit, senior director, Life Insurance Sector Lead, Insurance Ratings, S&P Global Ratings.
According to Pulcher, capitalization remains strong for U.S. life insurers, and investment portfolio stress has diminished. Mortality claims have also declined, and demand for life insurance and annuities has led to significant sales recovery for the industry, year over year.
The life insurance sector remains a highly rated sector, she added. Ninety-two percent of companies are rated A or higher, and 93% have a stable outlook. Life insurance sales are stronger than they were pre-COVID-19.
“Sales have rebounded, and that is an encouraging sign,” she said.
In addition, second-quarter, year- to-date adjusted earnings have improved, although they were weighed down by mortality rates during the first quarter of the year. “This appears to be on the rebound,” she added. Sales for annuities, both fixed and variable, also continue to grow in 2021.
From Margalit, attendees received more good news from the ratings arena: Strong capital buffers remain and support our ratings, he said. Eighty-nine percent of rated insurers have strong or better capital. “The industry has withstood the impact of COVID-19 so far and is able to grow its capital,” he said.
In addition, share buy-back activities represent some level of strength and have increased on the back of strong earnings and improved market conditions. “We are carefully tracking this,” Margalit added.
In addition, since September 2020, deal flow in the M&A arena “has been on a tear,” outpacing that of 2019, Margalit said. In talks with company officials, a major theme has been how alternate asset managers are stepping into this space. For example, during the past year and a half, new entrants have entered the market.
Looking ahead to 2022 and beyond, Margalit offered several observations, including the following:
More M&A activity is likely to occur, as private equity enters the market.
COVID-19 is not yet over, and insurance companies will need to manage the unknown, longer-term impact of the pandemic on morbidity and mortality.
Low interest rates will continue to present challenges.
Insurtech will continue to modernize the life insurance value chain.
ACLI’s 2021 Annual Conference runs from Oct. 12 to Oct. 13, and brings together senior executives from life insurance and financial services companies to examine the business and political issues that impact the industry.
The program features general sessions with well-known speakers and more than 20 breakout sessions addressing several key areas, including investment/financial, reinsurance, compliance, retirement security, advocacy, and legislative and regulatory issues.
Ayo Mseka has more than 30 years of experience reporting on the financial-services industry. She formerly served as Editor-In-Chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]