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Life Health > Running Your Business

The 2023 Life, Health and Annuity Prediction Almanac

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The year has changed, and forecasters are busy looking at sales data, stock market data, general economic data, tea leaves, Ouija boards and anything else that can give them hints about what comes next.

Here’s a catalog of some of the predictions that have flowed our way, sorted into 10 categories.

1. Accounting Rules

New Long Duration Targeted Improvement accounting rules are supposed to take effect in 2023 and change how insurers account for products, such as life insurance policies and long-term care insurance policies, that often stay in place for many years.

The new rules may hurt the stocks of insurers that are already having problems but do little to insurers with strong profit margins, Morgan Stanley securities analysts predicted in a Life Insurance Primer 2023 report released at the end of 2022 and posted behind a paywall.

2. Dealmaking

Block Deals

Many traditional reinsurers and reinsurance affiliates of private equity firms have used reinsurance arrangements or acquisitions to acquire blocks of in-force life insurance policies or annuity contracts from the original issuers.

Deal activity for blocks of in-force life and annuity business has remained strong, in spite of the effects of rising interest rates on the cost of borrowing money to make deals, according to PwC’s Insurance: U.S. Deals 2023 Outlook report.

“Acquirers of these in-force/legacy blocks don’t rely on debt financing, which makes these transactions appealing to buyers in a rising rate environment,” the PwC analysts said.

“As a result, we’ve seen increased demand and rising valuations for these assets as private equity seeks to deploy its extensive dry powder.”

Distribution Firm M&A

Demand for insurance distribution firms will remain strong, but rising interest rates will increase the cost of borrowing, PwC analysts said.

“As the cost of borrowing increases, we expect valuations to decline, specifically for insurance brokerage targets where many of the brokerage consolidators are private equity backed and rely heavily on debt financing to fund these acquisitions,” the analysts warned.

Life Insurance Company M&A Headwinds

Economic and geopolitical uncertainty cut the number of big U.S. insurance company mergers and acquisitions in the second half of 2022, PwC analysts observed.

“We expect economic headwinds to persist into the first quarter of 2023 as companies evaluate the impacts of inflation and interest rates on deal values,” the PwC analysts said.

Life Insurance Company M&A Tailwinds

Higher interest rates could make life and annuity issuers more attractive targets for mergers and acquisitions, by increasing the insurers’ projected profitability, according to the Deloitte Center for Financial Services’ 2023 Insurance Outlook report.

The firm predicted that life insurers will use 2023 life business sales to shift from being protection providers to fee-based asset gatherers, administrators and employee benefit sellers.

Private equity firms will continue to invest in life and annuity issuer deals, and life insurers may continue to try to improve their technology by acquiring insurance technology startups, Deloitte analysts predicted.

3. Demand Drivers

Consumer Confidence

About 34% of 3,656 U.S. consumers surveyed for Bankrate in November 2022 said they expected their personal financial situation to get somewhat better or significantly better in 2023, and 29% said they expected their financial situation to get worse, according to Bankrate.

Generation Z

The oldest members of Generation Z — or U.S. residents born from 1997 through about 2012 — are turning 26 this year. Many are already marrying, having children and shopping for life insurance, Melbourne O’Banion said in an email interview. O’Banion is the CEO of Bestow, a company that writes and sells life insurance online.

The new Generation Z life insurance buyers will insist on buying life insurance through their mobile phones, and they will start out wanting policies that cost $20 per month or less, O’Banion said.


About 71% of U.S. adults surveyed in the fourth quarter of 2022 told Lincoln Financial that they gave inflation a rating of 4 or 5 on a 5-point concern scale, up from 64% in the first quarter of the year. The item that ranked second, “having income enough income in retirement,” received high concern ratings from 59% of the survey participants.

Inflation could do more damage to life insurance sales than to sales of property and casualty insurance, according to S&P Global Ratings. The increased cost of living could hurt life and annuity demand by reducing consumers’ purchasing power, but many P&C lines are mandatory, and P&C coverage issuers can easily increase premiums to adjust for inflation, S&P said.

4. Demand by Product Line


Total U.S. annuity sales could increase to a range of $286 billion to $306 billion in 2023, according to LIMRA. The financial services research organization has estimated that U.S. individual annuity sales totaled about $267 billion to $288 billion in 2022.

For the period from 2021 through 2026, U.S. individual annuity sales could fall 5% per year for products without significant guarantees and increase an average of 6% to 7% per year for products with at least some guarantees, McKinsey analysts predicted.

Health Insurance

About 12% of freelancers and other “gig workers” were planning to go without health insurance in 2023, according to a survey of about 4,000 gig workers that was released in November 2022. The survey was organized by Stride Health, a web broker that serves gig workers.

Life Insurance

For the period from 2021 through 2026, U.S. individual life insurance sales could increase about 2% per year for fixed-rate life insurance policies aimed at buyers who want to focus on building cash value; about 3% to 4% per year for protection-oriented life insurance; and about 6% per year for life insurance policies with cash value totals tied to the performance of the investment markets, according to McKinsey analysts.

U.S. sales of individual term life insurance could improve in 2023, according to LIMRA. The financial services research organization predicted that sales of individual whole life and individual variable universal life will hold steady in 2023, and that demand for indexed universal life will experience a minor decline.

5. The Economic Backdrop

Credit Markets

What a weakening economy could do to bond issuers, and what problems at bond issuers could do to life insurers’ trillions of dollars of investments in bonds, may be questions of interest for investors in 2023, Morgan Stanley analysts proposed.

“For now, we are solving for an early 2000-style default cycle — shallow but at risk of being protracted,” the analysts said in a Life Insurance Primer 2023 report released at the end of 2022. “In 2023, we expect default rates to increase and push above historical averages. But it is early to expect a default spike.”

Big, publicly traded life insurers have strong capital levels, and that could reduce the effects of any increase in defaults that does occur, Morgan Stanley analysts suggested.

Gross Domestic Product

Real U.S. gross domestic product, or national income, could:

• Fall by as much as 2% in 2023 or increase by as much as 1.8%, according to the Congressional Budget Office.

• Increase by 0.1% in 2023, according to the Swiss Re Institute. The institute estimated that real U.S. GDP increased by 1.8% in 2022.

• Increase by 0.4% in 2023, according to Moody’s Investors Service economists. They estimate that real U.S. GDP increased by 1.8% in 2022.

• Increase by 0.5% in 2023, according to median Federal Reserve Board member and Federal Reserve Bank president predictions. Fed forecasters estimated that real GDP also increased by 0.5% in 2022.


The overall U.S. inflation rate could:

• Fall to 3.1% in 2023, from 5.6% in 2022, according to the median Fed predictions.

• Fall to 3.7% in 2023, from 8.1% in 2022, according to the Swiss Re Institute.

• Fall to 4.8% in 2023, from 8.1% in 2022, according to Moody’s.

• Be somewhere between 2.2% and 4.7% in 2023, according to the CBO.

Inflation Commentary

Inflation may have an effect on life insurers, and especially for prospective customers, according to Brooks Tingle, president and CEO of John Hancock Insurance.

“We know there is a significant life insurance coverage gap in this country, with millions of Americans either uninsured or underinsured,” Tingle said in an email interview. “While many people know they need life insurance and want to get the protection it provides, the impacts of inflation may be preventative to purchasing a policy.”

Interest Rates

The yield on a 10-year government bond could fall to 3.6% by the end of 2023, from 3.9% at the end of 2022, according to the Swiss Re Institute.


The average annual U.S. unemployment rate could:

• Increase to 4.6% in 2023, from 3.7% in 2022, according to both the Fed and Moody’s.

• Be somewhere between 3.8% and 6.4% in 2023, according to the CBO.

6. Financial Performance

Business Mix

The big, publicly traded U.S. life and annuity issuers will get about 40% of their 2023 revenue from high-return activities, 44% from medium-return activities and 16% from low-return activities, according to Morgan Stanley analysts.

The Morgan Stanley analysts classified offering international coverage, asset management services, brokerage services, and health insurance and supplemental insurance products as high-return activities; offering pension products, variable annuities, group life programs and group disability programs as medium-return activities; and offering fixed-rate life, fixed annuity and variable life products as low-return activities.


The big, publicly traded U.S. life and annuity issuers could produce a total of about $20 billion in net income in 2023, or about the same amount of net income they produced in 2022, the Morgan Stanley analysts predicted.


Life and annuity premium revenue could be flat in North America in 2023 and 2024, Swiss Re Institute analysts predicted. The institute estimated that North American life and annuity premiums increased by 1.5% in 2022.

Financial Performance Commentary

North American life and annuity issuers have a neutral sector outlook for 2023, according to Fitch Ratings.

“Insurers will continue to benefit from rising interest rates and balance-sheet strength, which should partially mitigate volatile macroeconomic conditions and our economists’ expectation for a mild recession,” the Fitch analysts wrote.

At this point, the Fitch analysts noted, the number of bond issuers defaulting on payments is still low, and life insurers’ capital levels are high.

7. Morbidity, Mortality and Longevity

The COVID-19 pandemic could continue to have a major effect on the U.S. life insurance industry, by affecting people’s longevity and mortality, John Hancock’s Tingle said.

“We have yet to see the effects of the unknown, long-term impacts of the COVID-19 pandemic, delayed preventative care and the rise in mental health needs and chemical dependencies,” Tingle added.

8. Pets

The number of U.S. cats and dogs with health insurance could increase by about 20% to 30% per year next year, according to Brian Macias, president of Embrace Pet Insurance.

Only about 5 million of the 160 million cats and dogs living in the United States today now have health insurance.

9. Prices

Health Insurance

Many health plans have been able to hold costs down because they were using multi-year hospital contracts negotiated before inflation began to spike, according to Will Young the CEO of Sana, a company that runs self-funded health benefits plans for small and midsize employers.

“We will see premiums start to catch up with inflation in 2023, especially as insurers start to see more expensive contract pricing from providers,” Young said in an email interview.

10. Technology

Artificial Intelligence

In 2023, insurers might use AI systems to identify people who are vulnerable to disease and take steps to keep those people healthy, according to Stan Smith, the CEO of Gradient AI, a company that develops AI-based risk-assessment and risk-management systems.

Compliance Tech

Financial services companies will invest in automating efforts to document compliance with distribution and marketing rules, according to Joman Kwong, a manager at Laserfiche, a content management systems company.


Insurance technology startups may have to specialize more, and they may focus more on helping traditional life insurers upgrade their technology, O’Banion speculated.

Tech Spending

Financial services companies will continue to cope with tight budgets and high technology demands in 2023 by shifting to low-code and no-code software development strategies, Kwong said.

User Experience

Agent retention will be determined by “UX,” or user experience, according to Yamini Bhat, co-founder and CEO of Vymo, a system that helps manage interactions between financial institutions’ sales reps and financial institutions’ customers.

Bhat said in an email interview that, in November, the United States had about 300,000 insurance agent job openings, and that many of the new agents hired would be members of the millennial and Generation Z generations.

Insurers will have to replace slow, fragmented systems with a “single pane of glass view” to meet the younger agents’ tech expectations, Bhat said.

Virtual Lives

Consumers who spend a great deal of time interacting with other people online, through virtual identities, might want life insurance for their virtual selves, according to an EY NextWave Insurance report by Isabelle Santenac, the EY global insurance leader.

(Image: ALM)


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