S&P maintains a stable outlook for the U.S. life insurance sector, and assigned a stable outlook to over 90 percent of life insurers. The rating agency views asset risk as the most significant and immediate concern for the sector, over other factors relating to equity market volatility, near-zero interest rates and increased mortality risk.
Additional factors impacting S&P’s stable outlook for the U.S. life insurance sector:
• The effectiveness of hedging programs. Despite the declining equity market, hedging programs are working and insurers have been adjusting their playbooks for some time to suit this low interest rate environment.
• Relatively low reported losses from pandemic following stress tests.
Negative outlook triggers:
• Higher-than-expected corporate bond downgrades or defaults.
• Substantial reserve increases, which could occur due to persistently near-zero or declining interest rates. Long-duration targeted improvements may accelerate recognition of these impacts.
• Higher-than-anticipated losses due to hedge breakage from equity market volatility.
• Significant increases in mortality over the next few weeks or months.