Moody’s Outlook for Life Insurers is Stable

The latest forecast from Moody’s for you;

In April, we changed the outlook for the US life insurance sector to negative from stable. Although the global economy has begun to rebound, the recovery is fragile and interest rates are still at historic lows. Life insurers’ capital adequacy remains strong, but companies are still exposed to potential declines in capital from rating downgrades as well as a drag on earnings from low interest rates.

Macroeconomic conditions a drag on US life insurers, as recovery happens slowly. US GDP declined in the first two quarters of 2020, following economic shock from the pandemic, but rebounded sharply in the third quarter. Although our baseline forecast is for a continuation of the current US economic recovery, the forecast could be worse than expected, depending on the duration and severity of the pandemic. The early distribution of
an effective vaccine could be an upside.

Capital has held up well, but additional rating migration still possible. Most insurers still have high levels of capital, but heightened credit risk and elevated mortality claims could weaken industry capital levels in a downside scenario. Although the total amount of direct holdings in high-exposure sectors remains small, continued shutdowns and economic stress may impact the creditworthiness of troubled sectors, causing further capital deterioration.

Historically low interest rates remain a headwind for the US life insurance industry. Low rates will affect insurers’ earnings over time, reducing interest-sensitive product earnings because of spread compression. Key determinants of an insurer’s sensitivity to low interest rates are the prevalence of product guarantees, average guaranteed rates, the company’s ability to reduce rates, and asset-liability duration mismatches.

M&A and technology transforming sector, as low rates and pandemic accelerate change. Headwinds from ultralow rates and the pandemic are accelerating the changes to the life insurance industry. The pace of transactions has picked up as life insurers are increasingly motivated to shed interest-sensitive legacy books. Companies are also focused on improving their technology, especially with respect to distribution capabilities.

What could change the outlook. Economic growth and rising interest rates would likely lead us to change our outlook for the US life insurance industry to stable. Even absent significant economic growth or rising interest rates, we could change the outlook to stable if we perceive there to be reduced economic uncertainty and less risk of outsized credit deterioration and mortality claims.

There’s more detail and data here by the way.