U.S. life industry direct premiums and considerations will decline for the first time in four years in 2017 as regulatory uncertainty stymies sales of certain types of individual annuities, a new S&P Global Market Intelligence report projects.
The U.S. Life and Health Insurance Market Report presents a five-year outlook for premium writings in the life, annuity, and accident and health business, along with other select measures of industry performance.
We project direct premiums and considerations across the life, annuity, and accident and health business lines of approximately $654.6 billion, down 1.2% from 2016's record result of $662.6 billion. In subsequent years, we project low- to mid-single digit percentage growth in direct premiums and considerations in reflection of an expected rebound in annuity sales.
The projection for lower direct business volume in 2017 reflects an expectation for a sharp decline in ordinary individual annuity considerations as companies navigate the uncertainty associated with the implementation of the U.S. Department of Labor's Conflict of Interest rule, more commonly known as the fiduciary rule. Direct ordinary individual annuity premiums and considerations fell by 10.9% year-over-year in the first quarter of 2017 as lack of clarity about the manner in which the new presidential administration planned to proceed with the fiduciary rule's implementation, if at all, weighed on sales.
Our outlook projects a decline in ordinary individual annuity premiums and considerations of 11.5% in 2017, followed by a rebound in subsequent years as the industry gets a better handle on the new regulatory landscape.
Demand for pension risk transfer agreements represents a key factor supporting a positive near-term outlook for direct group annuity premium and considerations. S&P Global Market Intelligence projects growth in group annuity direct premiums and considerations of 3.3% in 2017, helping to partially offset the expected reduction in ordinary individual annuity business. It remains too early to tell how recently completed, proposed, and rumored transactions involving the structures of several large U.S. life insurance groups may impact premium growth trends. MetLife's separation of most of its U.S. retail businesses into Brighthouse Financial Inc represents the most impactful transaction given the company's standing as the largest U.S. life insurer by asset size, but it is hardly the only potentially transformative deal in the works. AXA announced plans in May to pursue an initial public offering of a stake in its U.S. life business. Published reports recently indicated that Manulife Financial Corp. may be eying a similar approach for John Hancock Life Insurance Co. (USA) and its affiliates.
A higher interest rate environment would also be beneficial for an industry that has struggled through a low-for-long rate environment. Yields on the 10-year treasury note through the first six and a half months of 2017 have remained well above the sub-2% levels that persisted through much of 2016. But they have not recently revisited their December 2016 highs, suggesting that a conservative approach to product design and pricing remains in order.
Access more data and insights from the full 2017 U.S. Life & Health Insurance Market Report.