The US life insurance industry has been on something of a growth spurt in recent years, with 2024 delivering a significant 14.46% increase in direct premiums and concentrations (both first year and renewal combined) compared to the prior year, according to S&P Global Market Intelligence’s 2025 US Life and Annuity Market Report.
While 2024 was something of an outlier, driven by record individual annuity sales and jumbo pension risk transfer group annuities, healthy increases were seen in 2023 (5.2%), 2022 (4.63%) and 2021 (6.98%) as well.
A convergence of themes has contributed to the growth story of the past few years, but the most notable one is not necessarily the one that gets the news media headlines.
“The individual annuity market is the most significant driver of overall expansion in the US life/annuity space,” said Tim Zawacki, Principal Research Analyst at S&P Global Market Intelligence.
“It’s such a large piece – there is over $400bn of volume expected this year. That is the key underlying driver of the overall results.”
A resilient US economy, higher interest rates, and demographic trends – the share of Americans aged 65 and above is currently at an all-time high – provide both structural and business cycle-based tailwinds that favour annuity sales.
Add to that the lack of options for American seniors, and you have the annuity growth story.
“Products such as registered index-linked annuities have grown quickly and become a significant contributor to the overall annuity market growth recently, and the traditional fixed deferred multiyear products continue to sell quite well, even with the pressure on interest rates. There just aren’t a lot of alternatives that offer that degree of protection because commercial banks have almost dropped out of competing for longer term deposits,” said Zawacki.
What does get the headlines is twofold and symbiotic: The increasing prevalence of alternative asset managers in the US life/annuity market, and the rapid growth of the pension risk transfer space.
The US pension risk transfer market has been in the news this year thanks to the proliferation of lawsuits in the market relating to concerns on the part of retirees that certain plan sponsors have not selected the ‘safest annuity available’ – a requirement under ERISA’s Department of Labor’s Interpretive Bulletin 95-1 – and that private insurers are not backed by the Pension Benefit Guaranty Corporation, thereby in theory, exposing retirees to a loss of federal guarantees.
And while aggregate premium in the PRT market this year may well be down from the approximately $50bn last year, overall, the PRT space has still been a healthy contributor to the recent expansion of the US life and annuity space.
Alternative asset firms feature here, either through ownership of an insurer writing PRT business or through a tie-up whereby they act as the or one of the partner investment firms charged with deploying these huge premium payments into higher-yielding investments.
But they are also playing an increasing role in the asset-intensive life reinsurance market, via ownership of Bermuda-domiciled reinsurance companies.
“The asset-intensive reinsurance space is growing in both block and flow reinsurance. In the former, where alternative investment firms feature more commonly, universal life with secondary guarantees, variable annuities with some guarantees, indexed annuities, structured settlements – billions of dollars of those blocks have been and are being transferred to PE-owned reinsurers in Bermuda and that has accelerated relative to last year because these transactions provide significant flexibility to the cedant,” said Zawacki.
Whilst flow reinsurance transactions see less participation from the alternative investment cohort, S&P said that these transactions are also increasing in frequency.
“While generally, it’s another cohort of companies participating in flow reinsurance, both types of reinsurance exponentially increase the cedants’ ability to produce new business. To the extent you cede the economics of those sales and make it fee generating, it provides additional capacity where it might not have existed before,” said Zawacki.
S&P’s report forecasts premium growth in the US life/annuity market to slow in the coming years, to 3.33% this year, and then between 3.5% and 4% each year through 2029. While supply and demand dynamics are expected to keep premium volumes near historical highs, with less volatility in individual life business lines, slow but steady GDP growth and higher unemployment levels could act as brakes; S&P’s report admits that it might be low-balling its forecast, however, because favourable resolution of PRT litigation in the near-term might serve as a catalyst for faster than expected growth in the overall life and annuity market given pent-up demand among plan sponsors to transact and the likelihood of additional capacity on the supply side returning to the market.
That remains to be seen. But regardless, growth is growth. And according to Zawacki, this time, for many reasons, it’s different.
“As long as the economy remains resilient, we anticipate the industry can maintain the kinds of volumes it’s been able to achieve over the last several quarters. Historically, you would have expected to see production fall sharply when interest rates have fallen like they have in the past year, but sales have been much more resilient than we would have anticipated when the Fed cut in September 2024. The second and third quarters of this year have been very strong, so this market has defied gravity in some respects,” he said.
“And you’ve seen at least over the last year that the business model continues to evolve. Direct origination capabilities, individual annuities, PRT; many carriers have reinsurance capabilities now. The continued growth in the private markets has helped facilitate the business model. Go back 10 years and this business would be unrecognisable in some ways due to how these strategies have proliferated. The business is markedly different today than in previous cycles and these reasons are why we see growth continuing.”
