US Life Insurers Shift Gears Amid Volatile Economy

High equity-market volatility, low interest rates, sluggish U.S. economic growth and the evolving eurozone debt crisis continue to weigh heavily on the investment portfolios of U.S. life insurers, according to a new A.M. Best special report, "U.S. Life/Annuity Review & Preview" featured in BestWeek U.S./Canada.

Still, favorable earnings trends are expected to persist, despite a slow rate of growth, the report said. Additionally, the re-emphasis by the market's key players on whole life insurance, whose stable, long-term earnings help companies' credit profiles, is viewed as a similarly favorable development.

Also featured is the health Review & Preview. In 2011, health insurers faced numerous challenges related to the implementation of the Patient Protection and Affordable Care Act, new regulations and formidable economic conditions, A.M. Best noted. Even with the emergence of these requirements and environmental difficulties, most carriers fared well and operating results remained strong due to a continued trend of low utilization. For 2012 and beyond, A.M. Best expects margins may compress as health insurers are confronted with the full-year impact from the new rate-reasonableness requirement, and as utilization slowly rises.

Also in BestWeek U.S./Canada, New Jersey had an auto insurance reform breakthrough in 2003 and has never stopped pressing for further reforms since. The industry has successfully shot down a territorial rating proposal and saw a medical fee schedule upheld by state courts. Now the focus is on personal injury protection costs in the no-fault system.

"That's one of the pressure points for the auto line," said Rich Attanasio, vice president of property/casualty ratings at A.M. Best, of PIP costs and medical inflation. "It is a concern, from our perspective. It is having a negative impact on some companies' results."

In BestWeek Europe, the European Commission's much-anticipated white paper on pension reform lays out a bleak picture of pension funding in Europe if reforms aren't enacted soon. Laszlo Andor, EU commissioner for employment, social affairs and inclusion, said in a video statement that pension concerns are "very high on the agenda" now because "for many years it has been too low." Pension reforms should have been implemented earlier, as several factors including demographics have been outpacing existing pension systems, he said.

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