The global insurance industry emerged from the second year of the pandemic with a strong recovery: insurers worldwide collected almost EUR4.2trn in premiums, 5.1% more than the year before. In 50 of the 61 countries surveyed, the total premium volume at the end of last year was already above the level of 2019; at the global level, the growth adds up to +5.5%.
Rising interest rates are expected to continue to reduce investment maintenance reserve (IMR) balances for U.S. life insurers, according to Beinsure Media Global life insurance trends.
Stable investment portfolios, strong liquidity, and effective asset-liability management will mitigate the negative effects on statutory capital and cash flows.
U.S. life insurers’ commercial real estate (CRE) exposure is predominantly via commercial mortgage loans, with more modest exposure to commercial mortgage backed securities (CMBS) at less than 5% of cash and invested assets, with equity real estate not a meaningful allocation.
Under the prior accounting treatment, negative IMR balances were recorded as non-admitted liabilities, which reduced capital and RBC ratios for insurers with negative IMR balances, even if portfolios generated greater yields amid rising rates.
However, some insurers’ respective state regulators allowed for the admittance the negative balances.
IMR statutory accounting treatment smooths net income, as it requires realized fixed income gains or losses correlated to changes in interest rates to be amortized into income over the remaining term-to-maturity of the investments sold (including related hedging programs) instead of being reflected in income.
The estimated 2Q23 calculated IMR balance is $7 billion. Approximately 28% of companies had negative balances as of 1H2023, up from 23% at YE22 and 8% in 2021.
The life insurance business experienced growth in all regions, despite significant differences. North America, specifically the US, made the largest contribution. In the US, which accounts for nearly 27% of global life insurance premiums, projections indicate a nearly 9% increase. Western Europe, generating almost 30% of global premium volume, grew by 3.8%. However, growth varied within the region.
Realized losses transferred to IMR in 2022 totaled $17.3 bn, with reserve balances down $6.3 bn YTD through 2Q2023 to $16 bn. As of 2Q2023, this figure has dropped 59% due to Fed tightening, asset repositioning, and widening spreads.
Regarding the market landscape, Metlife emerged as the largest life insurance company in the US and the seventh globally in 2023, despite its stock performance being second-worst in the US life insurance sector with a 7.5% decline, according to Beinsure Media research.
The largest US life insurers in terms of premiums were Northwestern Mutual Life Insurance, MetLife, and New York Life.
The majority of Northwestern Mutual’s $13.30 billion in direct premiums came from individual life business. Metlife recorded $11.45 billion in total direct premiums, with $9.55 billion from group life business. New York Life was close behind with $11.13 billion in total direct life premiums.
Life insurers’ commercial real estate portfolios have been a hot topic, particularly as the market for office space saw challenges in 2023. Concerns over exposure persist even though company executives have used earnings calls to try and assure investors that any potential problems in commercial real estate are manageable.
Enhanced scrutiny of growing private-equity investment into the insurance space may also be on the docket in 2024.
The global economy is projected to grow slightly faster in 2023 than Fitch Ratings anticipated in its June Global Economic Outlook. However, China’s property market slump and monetary tightening in the US and Europe are dampening growth prospects.
Italy (+12.5%), Greece (+13.8%), and Portugal (+68.5%) showed double-digit growth rates in life insurance, while France (-0.5%) experienced a second consecutive year of decline. Germany also reported a decline of 1.4% after a modest growth of 0.4% the previous year. Other markets (4.2% global share) saw 12.7% growth, driven by Latin America (+13.9%) and the Middle East & Africa (+18.9%).
The property insurance business saw positive premium growth across all regions in 2022. The US led with nearly EUR 685 bn in premiums, a 10% increase. Western Europe insurers also saw positive growth in all countries, with a regional increase of 3.3%. Greece (+5.7%) and Austria (+4.7%) exceeded the average, while Germany (+2.4%), Italy (+2.6%), and Spain (+2.7%) lagged behind. Western Europe represented nearly 24% of global premium volume at the end of 2022.
Realized losses transferred to IMR were $15 billion in 2022, versus a gain of approximately $8.8 billion in 2021 and gains of $15.3 billion in 2020.
At YE22, the effect of lower/negative IMR to our aggregate RBC ratio on earnings and capital was well within ratings expectations, but was material for certain insurers, although not a ratings constraint.
