US Insurance 2025 Outlook: Life Sector Trends

• • This is Part 1 of our Life and P&C Insurance outlook series.This piece focuses on the US Life Insurance sector and we discuss key themes, trends, and topics heading into 2025 and beyond.

Regulatory Capital Trends

The US Life Insurance industry is on fundamentally strong footing, with the sector’s capital and surplus position estimated at ~$520 billion at 3Q24, reaching a new record high from $513 billion at YE23 and $490 billion at YE22.

In 2024, there were fewer factors impacting overall industry capital levels compared to previous years. MetLife and Corebridge experienced significant declines in absolute regulatory capital levels. For MetLife, this was due to a reinsurance arrangement for legacy run-off liabilities, freeing up capital upstreamed to the parent level. Corebridge’s decline was due to a highly profitable year at the OpCo level, contributing to upstreaming capital to the parent company. Despite this, regulatory capital metrics measured by RBC remain strong for both. More stringent reserve requirements for variable annuity products led to reduced capital and surplus at companies like Equitable and Brighthouse. Meanwhile, improving mortality trends and favorable financial market performance increased surplus at insurers not typically associated with the Life Insurance sector, such as State Farm and Berkshire, both having significant equity holdings within their regulated Life insurance operations. In past years, reinsurance arrangements that moved liabilities to domiciles like Bermuda negatively impacted industry capital levels. However, in 2024, there was a decline in such risk transfer activity, and overall industry profitability largely offset this factor.

Regulatory capital, as measured by risk-based capital (RBC) ratios, remains strong among leading insurers. While target RBC ratios vary, most of the industry targets between 350% – 450%. Rating agencies often take notice if ratios fall below 350%. Based on a sample of leading insurance groups, each insurer meets or exceeds their RBC ratio target.

A concern remains for insurers with significant exposure to variable annuity products. Although current products like buffered VAs are considered less risky than legacy VAs with secondary guarantees, insurers such as Brighthouse, Equitable, and Jackson are encouraged to aim for higher RBC ratios due to their exposure to these legacy products. Historically, these insurers reported RBC ratios above 500%, but they are now managing closer to the 400% area.