In spite of both some old and a few new challenges, the life insurance industry turned in a solid financial performance in 2005, according to a new report issued by Moody’s Investors Service, New York.
The rating agency adds that all indicators point to a continuation of these trends in 2006.
Moody’s cites rising income statement indicators including industry revenues and net income and, on the balance sheet, an increase in general and separate account asset growth as reasons to maintain its support of the life insurance industry’s average ‘A1′ insurance financial strength rating.
The life insurance industry, according to Moody’s, continues to maintain the ‘stable’ outlook that it earned in 2004, an outlook marked by a “moderate” number of ratings actions driven by characteristics that are specific to companies rather than to the industry as a whole.
“We expect to see a continued trend in solid performance,” says Laura Bazer, a Moody’s vice president and senior credit officer, who is part of the team of insurance analysts that compiled the report. The pace of that improvement will moderate because the initial improvement followed a bear market in 2001 and 2002 as well as the impact of 9/11, she explains.
The challenges, according to the report, include new reserving requirements such as the C-3, Phase II model regulation developed by the National Association of Insurance Commissioners, which affects variable products with secondary guarantees. Other regulatory scrutiny focused on the sale of equity-index annuities that regulators continue to address.
Industry-specific challenges, according to the report, include managing the equity market risk of the various variable annuity living and death benefit guarantees.
Individual life insurance sales, the report says, totaled about $9.3 billion in 2004, an increase of about 7% over 2003.