AM Best: US Life/Annuity Industry Continues to Shift More Focus to Annuities

Why It Matters

The shift toward offshore reinsurance and private‑credit exposure threatens capital quality, prompting insurers to tighten risk controls to protect solvency and investor confidence.

Key Takeaways

• Capital levels up 4% through Q3 2025, but quality declines
• Insurers increasingly use offshore and affiliated reinsurance structures
• Private credit allocations rise, raising concentration and default risk concerns
• Mid-sized carriers outsource investment management, embracing less liquid assets
• 2026 outlook expects stable earnings, premium growth, heightened risk management

Summary

The AM Best annual review highlights a paradox in the U.S. life‑annuity market: overall capital is expanding, yet the quality of that capital is eroding. Through the first three quarters of 2025, carriers reported roughly a 4% increase in surplus, driven by net‑income growth and a post‑pandemic normalization of claims. At the same time, insurers are turning to offshore and affiliated reinsurance arrangements, and allocating more to private‑credit and other illiquid assets to chase yield.

Key data points include favorable BCAR scores across most segments, a modest dip in group‑annuity surplus due to heightened consumer demand, and a material rise in average leverage over the past five years. Private‑credit exposure now spans ABS, direct lending, and asset‑backed financing, raising concerns about concentration risk and limited expertise. Mid‑size carriers are increasingly outsourcing investment management, further embedding less liquid holdings in their portfolios.

Kate Stefanelli emphasized that “the risk is really in concentration and lack of expertise in managing the assets,” and noted that offshore reinsurance allows entities to exploit differing capital‑requirement regimes while keeping risk within the broader organization. She also pointed out that transparency around these structures is improving, but robust enterprise‑risk‑management frameworks remain essential.

For investors, regulators, and insurers, the outlook for 2026 signals stable earnings and continued premium growth, but also underscores the need for stronger risk‑management practices, technology adoption, and diversification away from high‑yield, high‑risk assets. Companies that fail to address concentration and offshore‑reinsurance exposures may see their capital quality deteriorate, affecting solvency ratings and market confidence.

Original Description

AM Best Associate Director Kate Steffanelli discusses new research that finds the US annuity market delivered another strong performance that continued into 2025, aided by retirement product demand, favorable rates and product innovation.