The report noted the following:
- High VB growth rates attract major employee benefit (EB) players. VB sales, at just under $9 billion in 2019, have expanded at a compound annual growth rate of 5% over the last 10 years as employer-paid benefits decline. Leading EB providers like MetLife (A3 stable) and UNUM (Baa3 stable) are also top VB players, benefiting from rising employee demand.
- Economic fallout from the pandemic will drive near-term VB sector volatility. Windfall dental, vision and short-term disability profits from stay-at-home decrees in the first half of 2020 were temporary, as Q3 2020 claims activity has picked up, the report notes. High unemployment, particularly in hard-hit service sectors, will likely weigh on some sales and renewals. Moody’s pins this as a negative for exposed providers into 2021.
- Long-term VB growth prospects remain strong. VBs are attractive, lower-cost benefit products for both employers and employees. Moody’s expects VB offerings to expand and employee demand to pick-up post-pandemic – a credit positive for future VB sales and providers.
- Established VB players have the home court advantage. Established VB providers with strong distribution networks, employee education programs and enrollment platforms will gain most from VB expansion post pandemic. Moody’s says new entrants may make inroads, but this will be costly and take time.
The research stated that, for insurers, VBs are products with less interest rate risk — along with lower capital requirements — than traditional life and annuity products. Because of this, Moody’s posits that VBs “can provide good revenue and earnings diversification from spread-based businesses in the current ultralow interest rate environment.”
Moody’s also noted that Aflac, MetLife and Unum hold the most market share of all players within the VB space, with Guardian, Allstate Benefits and Cigna ranking in the top 10 as well.