Overview of US life insurance sector

Presentation to the Federal Advisory Committee on Insurance

September 2023
Moody’s Investors Service September 2023 2
Moody’s Investors Service September 2023 3

1. Overview of US life insurance sector

2. Trends in cross-border life reinsurance

3. Appendix

Agenda
1

Overview of US life 

insurance sector
Moody’s Investors Service September 2023 5

US life insurance outlook is stable

NEGATIVE

What could change 

outlook to negative

» Weakening economic 

environment

» Spike in interest or return to a 

prolonged low-rate environment

» Downgrades & defaults that 

weaken asset quality, reducing 

capital

» Sharp and sustained decline in 

the equity markets

» Increased return of capital to 

shareholders

POSITIVE

What could change 

outlook to positive

» Stronger economic growth. 

e.g. Moody’s forecast of 

sustained GDP growth above 

6% and unemployment ratio 

below 4%

» Continued gradual increase in 

interest rates

» Robust equity market growth 

with no signs of a recession

» Balance sheet remains 

strong, including solid capital 

and focus on risk 

management

STABLE

Key drivers

» Rising interest rates boost 

portfolio yields, sales

» Investment portfolios remain 

in good shape, credit losses 

are moderate thus far

» Strong balance sheets, solid 

capital levels, with focus on 

risk management

» Excess mortality experience 

from pandemic has subsided 
Moody’s Investors Service September 2023 6

Key credit themes

Interest rates

M&A and divestitures

Capital and risk management

Investments
Moody’s Investors Service September 2023 7

US life transform, creating winners and losers

$5.0 trillion in assets

Source: Moody’s Investors Service, S&P Capital IQ (contains copyrighted and trade secret materials distributed under license from S&P Capital IQ. For recipient's internal use only) 
Moody’s Investors Service September 2023 8

Asset quality remains solid, expected rise in defaults in 2023

Investment portfolio

Source: Moody’s Investors Service, S&P Capital IQ (contains copyrighted and trade secret materials distributed under license from S&P Capital IQ. For recipient's internal use only) 

US speculative-grade default rate expected to rise modestly 

44%

16%

6%

1%

4%

7%

5%

5%

4% 1%

4% 3%

Corporate Bonds

44%

Mortgage Loans

17%

Foreign & Municipal

5%

Bank Loans

2%

Other Invested Assets

5%

ABS/CLO

8%

Agency MBS

3%

Nonagency MBS

5%

US Treasury/US Gov't 

Agency (excl MBS)

3%

Contract Loans

3%

Equity

2%

Cash

3%

2019

2022

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

7/1/2014 1/1/2015 7/1/2015 1/1/2016 7/1/2016 1/1/2017 7/1/2017 1/1/2018 7/1/2018 1/1/2019 7/1/2019 1/1/2020 7/1/2020 1/1/2021 7/1/2021 1/1/2022 7/1/2022 1/1/2023 7/1/2023 1/1/2024 7/1/2024

US Actual US Baseline Forecast US Severe Pessimistic Forecast US Moderate Pessimistic Forecast US Optimistic Forecast

Commercial real estate exposure to office type properties is 21%
Moody’s Investors Service September 2023 9

Impacts of higher interest rates and inflation

Inflation has mixed credit effects

» Positive for the top line of Retirement and Group businesses

» Can adversely affect LTC as cost of care (wage inflation) increases in 

response

» Similar negative impact for business expenses across all lines (G&A, etc.)

Gradually rising interest rates generally positive

» Benefits for the life industry

» Relieves pressure on minimum guarantees

» Helps reduce spread compression

» However, rapid spike in rates can lead to disintermediation

Source: Moody’s Investors Service, Federal Reserve Economic Data

0%

2%

4%

6%

8%

10%

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

Jan-22

Apr-22

Jul-22

Oct-22

Jan-23

Apr-23

Jul-23

Oct-23

Jan-24

Apr-24

Jul-24

Oct-24

Actual CPI Projected CPI

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

interest rate %

US 10-Year Treasury US 10-Year Treasury plus A spreads

US 10-Year Treasury plus BBB spreads
Moody’s Investors Service September 2023 10

RBC remains solid, but more business moves offshore

Strong capital, but capital market pressures rising

Source: Moody’s Investors Service, Company filings

0%

100%

200%

300%

400%

500%

600%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Industry RBC Ratio

Median Average
2

Trends in cross-border 

life reinsurance
Moody’s Investors Service September 2023 12

More US life insurance reserves are moving offshore

An increasing amount of business – mostly annuities, including contracts supporting pension risk transfer liabilities –

is being reinsured into international markets

» These arrangements or structures support sales initiatives, and inforce blocks providing private capital insurers a key 

source of funds for their asset management businesses.

Source: Moody’s Investors Service, S&P Capital IQ (contains copyrighted and trade secret materials distributed under license from S&P Capital IQ. For recipient's internal use only) 
Moody’s Investors Service September 2023 13

The primary offshore destination for US reinsurance reserve 

credit is Bermuda

Several reasons for the recent growth in the Bermuda market

» Significant resources invested building and maintaining an 

international regulatory regime and infrastructure

» An offshore jurisdiction that has sophisticated regulation, but 

has listened to industry concerns as well

» Focus on economic capital and ALM

» Solvency II equivalence

» An NAIC qualified and reciprocal jurisdiction

» Access to capital that includes expertise to set up sidecars

Source: Moody’s Investors Service, S&P Capital IQ (contains copyrighted and trade secret materials distributed under license from S&P Capital IQ. For recipient's internal use only) 
Moody’s Investors Service September 2023 14

Why are insurers moving business offshore?

Investments

» Total reserves and capital may be less for 

some insurers with riskier investment 

portfolios

» Greater concentration of private / risky 

investments tend to be in offshore 

jurisdictions

Financial reporting / taxes

» Generally, less transparency than US; 

however, some good public disclosures in 

certain jurisdictions. 

» Tax benefits; sidecar investors could benefit 

from reduced taxes

Capital

» Potential for more capital efficiency; i.e.

higher ROE

» Companies lacking offshore presence find it 

challenging hard to compete in certain 

product lines like fixed annuities

» Non-economic liability reserving drives some 

capital offshore

» More recognition of ALM in capital calculation 

in some regimes

Each insurer has tailor-made motivations
Moody’s Investors Service September 2023 15

Private capital's investment in life insurance sector seeks to 

improve cash flow and build scale

Based upon an estimated amount of capital invested in USD billions

Private capital (re)insurers gather majority of 

offshore reinsurance activity

Plentiful resources from private capital firms in recent 

years has accelerated M&A activity

» This has provided life insurers a way out of capitalintensive businesses and into capital light businesses

Source: Moody’s Investors Service, S&P Capital IQ (contains copyrighted and trade secret materials distributed under license from S&P Capital IQ. For recipient's internal use only) 
Moody’s Investors Service September 2023 16

Offshore life reinsurance reserve credits exceed industry 

capital and surplus

1. Excludes capital and surplus retained in offshore (re)insurers 

1

Source: Moody’s Investors Service, S&P Capital IQ (contains copyrighted and trade secret materials distributed under license from S&P Capital IQ. For recipient's internal use only) 
Moody’s Investors Service September 2023 17

Key credit themes to watch on offshore reinsurance 

Source: Moody’s Investors Service

Credit 

Themes

ERM

Has the risk profile of the 

organization changed

Counterparty Risk

How is a company 

protected and what is 

consequence of a 

recapture? Will an industry 

concentration to a weaker 

counterparty develop?

Capital

How does offshore reinsurance 

affect capitalization of the 

overall group?

Regulatory

Coordination amongst 

regulators critical to 

understanding groups.

Consolidation

Industry still ripe for 

more consolidation 

Investments

Are investments riskier; how 

will structured investments 

perform under stress? Is asset 

liquidity appropriate for 

liabilities?
3 Appendix
Moody’s Investors Service September 2023 19

Rating trends in US life insurance sector

Rating distribution (52 groups)

Upgrades and downgrades Outlook distribution

# of insurers Average IFS rating

Mutual insurers 13 Aa2/Aa3

Non-mutual insurers 39 A1/A2

Total 52 A1/A2

Average IFS rating

Source: Moody’s Investors Service

* As of September 15, 2023

POS

6% NEG

10%

STA

84%

0

5

10

15

20

25

Upgrades Downgrades

0

10

20

30

40

Aaa Aa A Baa Ba B Caa
moodys.com

Marc Pinto

Managing Director

Marc.Pinto@Moodys.com

Scott Robinson

Associate Managing Director

Scott.Robinson@Moodys.com

Robert Garofalo

VP – Senior Credit Officer

Bob.Garofalo@Moodys.com
Moody’s Investors Service September 2023 21

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