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COMMENTS

U.S. Life Insurers Enter A New Decade With Balance-Sheet Strength, While Old Headwinds Still Loom


U.S. Life Insurers Enter A New Decade With Balance-Sheet Strength, While Old Headwinds Still Loom

It feels like déjà vu as return to a "lower for much longer" environment. The Federal Reserve has instituted an abrupt change in its monetary policy by reducing rates three times in 2019. Although we anticipate no further rate cuts in 2020, these actions have put a lid on the slowly rising rate momentum seen between 2014 and 2018. Simply put, interest rates will likely remain low for the foreseeable future, which over time dampens U.S. life insurers' earnings prowess and the risk of reserve charges adding volatility to an already complex set of financial statements.

What makes this go-around a bit different is that the Fed's more accommodative policy comes during a bull equity market. Moreover, stocks rallied as 2019 came to a close, with optimism over U.S.-China trade helping propel all major indexes up over 20%--a far cry from the 2018 Christmas Eve selloff. All in all, this equity market expansion may help paint a rosy--perhaps too rosy--picture for life insurers whose income relies on fees linked to account balances like variable annuities (VAs) and retirement products.

Despite the rate environment, S&P Global Ratings is maintaining a stable outlook on the U.S. life insurance industry for 2020. We believe insurers are adept at managing headwinds, supported by robust capitalization and liquidity. We have witnessed an evolution over the last decade toward more risk sharing with policyholders through structural changes in product designs as well as repricing and moderation of guarantee benefits. Likewise, the prominence of block sale transactions and the rising popularity of adding macro hedges on top of dynamic hedges should better protect financial strength in times of stress, although these strategies vary widely by insurer. Additionally, just over 90% of our rated life insurers currently have stable outlooks, which indicates the low likelihood of negative rating changes in the next 12 months.

Beyond 2020, we expect life insurers will be busy navigating through a mixed bag of old and new risks. Besides macroeconomic headwinds, major regulatory changes, accounting changes, and mergers and acquisitions (M&A) are likely to affect industry dynamics. The industry is going long on longevity, which presents a new set of opportunities (for example, as afforded by the SECURE Act) and challenges. Lastly, investment in technology can be a game changer if we see breakthrough advances, which we haven't yet.

Economic Outlook

Interest rates: Low for long or forever

Just as U.S. life insurers were enjoying slowly rising rates, the rug was pulled out from underneath them as the Fed halted rate increases in late 2018 and proceeded to cut rates in mid-2019--though we don't expect another cut in 2020. The Fed cut the benchmark federal funds rate three times last year as insurance against downside risks from tariffs, under the cover of subdued inflation and slower foreign growth.

S&P Global economists believe 10-year Treasuries will slowly trend higher but remain range-bound at 2%-2.5% through 2022. We also pay attention to the term spread (10-year minus three-month Treasury rates), which had been negative since late May but reversed trajectory to become positive in mid-October. The "un-inverting" of the yield curve could be a sign of easing concerns about an upcoming recession. S&P Global economists predict a 25%-30% risk of recession as of late November, down from 30%-35% in August, reflecting improvements in economic conditions--namely, the escalation in trade talks between the U.S. and China, reduced concerns about the manufacturing sector, and a more accommodative monetary policy.

Once again, the life insurance sector will need to come to grips with low rates as the "new normal." Some life insurers reduced their long-term rate assumptions in the third quarter of 2019, which in turn resulted in strengthening of underlying reserves. The good news is that even though spread compression is becoming more acute, we don't view the current bleed as hemorrhaging yet.

The industry is managing to offset some interest-rate pressure from older investments with higher yields, but that boost on portfolio-earned rates is starting to wither at this point in the cycle. Accordingly, the average statutory net investment yield declined to about 4.4% in the first nine months of 2019 from about 5.2% in 2010 and 5.75% in 2007. Over the last 10 years, we have seen 68% of bonds that carried higher yields turn over, based on statutory financials.

Life insurers have not been taking on heightened credit risk but instead reaching for more illiquid assets in their hunt for yield. Despite this ongoing trend, we still see the sector as having a strong liquidity profile. However, an outsize increase in investments with less-liquid attributes, combined with higher-than-expected lapses or collateral-posting requirements, could have a negative credit impact on individual insurers.

Credit deterioration also has been relatively benign, as shown by the tight credit spreads enjoyed by 'A' and even 'AA' issuers. Nonetheless, we are starting to see a softening of corporate credit quality. In light of "low for long" interest rates, we believe that the average life insurer general account portfolio yield will continue to decline as older, higher-yielding investments roll off and new money is put to work in the current low rate environment.

Investments only tell half of the story--one that highlights yields earned by insurers on inflow and potential impairment risk. The other half involves the actual insurance liabilities on the industry's balance sheet. One example of these liability risks can be measured by viewing crediting rates to policyholder accounts. To minimize spread compression, insurers have actively reduced crediting rates where possible on such liabilities. We looked at the tabular interest rates on annuity reserves as a proxy for the crediting rates and compared it with the investment yields, 10-year Treasury rates, and 'A' rating level credit spreads (see chart 1). We are now seeing nearly 1% minimum crediting rates on newer contracts.

Chart 1

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Life insurers that sell annuities also have the ability to reset crediting rates on their in-force contracts but can only do so at specific preestablished periods, which creates a lag. Likewise, there is only so much life insurers can adjust, because reset crediting rates are at or getting closer to guaranteed minimum interest rates on in-force business. Furthermore, lower-than-expected lapse rates, especially on the older annuity contracts, still have minimum guarantees of 4% or more, tending to squeeze net interest margins.

Equity risk: Preparing for future headline risk

Eventually all good things must come to an end, and as this equity market keeps hitting record levels, we can't categorically rule out the possibility of a downturn, even though it is outside S&P Global economists' baseline assumptions.

Most insurers have significantly reduced their equity market exposure through increased hedging, repricing, and moderating guarantees on new products. We consider VAs with living benefits as the products most prone to equity risk. Typically, there is pro-cyclical demand of VA products from annuityholders in a bull equity market. However, we have seen a tightening on the supply side as life insurers have learned the painful lessons of the last crisis. Accordingly, VA sales have dropped to just over $100 billion in 2018 from nearly $156 billion in 2008, with the number of carriers selling over $5 billion in sales cut in half, to six players from 12, during the same period.

The sector is still sensitive to equity risk in the next recession. Particularly, some market-sensitive legacy blocks still contain rich guarantees that would be exposed to a market downturn, and insurers with increased exposure to asset-management businesses would see lower fees from an equity market decline. However, we believe the effects will be more moderate than in the last market downturn due to most insurers' active liability management, increased hedging practices, and capital buffers that are better suited to absorb the next stress event.

Credit risk: When the credit cycle turns

As credit spreads have remained tight, insurers have pushed their bond investments toward the lower end of the investment-grade category ('BBB-' or higher), predominantly through private placements. Over the past 10 years (2008-2018), 'BBB' category bonds held by life insurers have increased by about 75%, well outpacing the 35% growth in their overall bond portfolios.

We undertook a hypothetical stress test to estimate the impact of a potential market downturn on U.S. life insurers (see "When The Cycle Turns: Investment Impairments Will Bend But Not Break U.S. Life Insurers' Financial Strength," May 13, 2019). Specifically, we stressed the current 'BBB' bond holdings based on the "fallen angel" levels during 2008-2009. Our analysis indicates that, on an aggregate level, our rated U.S. life insurers could see a net impact of about $20 billion or about 5% of total adjusted capital from asset stress in an upcoming downturn.

The record level of 'BBB' category exposure indicates pressure points that may get activated in a downturn. Now, the increased amount of 'BBB' debt in insurers' portfolios also reflects the overall corporate credit market, where the 'BBB' category accounts for over half of all investment-grade issuers. However, compared with the overall corporate credit market, life insurers hold (see chart 2) fewer 'BBB' category bonds and a greater proportion of 'AAA' to 'A-' bonds.

Chart 2

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However, U.S. life insurers' proportion of 'BBB-' within the 'BBB' category has outpaced that of overall U.S. corporate debt, raising the odds of assets becoming fallen angels, or falling to speculative grade from investment grade. We believe life insurers are trying to get ahead of this trend by moving their holdings up within the 'BBB' category through reinvestments.

Chart 3

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Collateralized loan obligation (CLO) exposure, which has more than doubled over the past 10 years, has been a focus given the rapid growth and differing insurers' tolerances toward this asset class. Based on the National Assn. of Insurance Commissioners' (NAIC's) report on CLOs, U.S. insurer exposure to CLOs at year-end 2018 was about $130 billion, representing less than 2% of total cash and invested assets as of year-end 2018. Although the overall exposure remains low and highly rated, a few insurers have concentrated investments and a bias toward low-rated tranches. As the cycle turns, the impact of impairments will vary by insurers' differing exposures.

What's next for investment risk?

We anticipate our rated insurers will embrace a defensive posture in anticipation of the possible maturity of the credit cycle. We expect insurers to continue to reinvest new money higher up in credit quality within the 'BBB' category, or at least focus on sectors they view to be less prone to risk within the 'BBB' category.

We believe insurers will continue to shift away from public 'BBB' bonds and increase privately placed bonds in the same category. As insurers make adjustments, some of the new money may continue to flow into higher-rated CLOs that provide higher relative yields than similarly rated corporate bonds, while allowing insurers to maintain higher average credit quality for their invested portfolios.

Risk Evolution Through The Lens of Capitalization, M&A, And Product Design

Capitalization is strong but has reached its peak

Capital adequacy is crucial for life insurance companies as it allows the industry to take on long-tail risks. Capitalization remains a key strength in the sector, with 15% redundancy at the 'A' level in aggregate. However, mutual insurers generally have stronger capital adequacy than publicly traded and alternative capital-owned insurers.

While capitalization levels vary widely across insurers, in the aggregate they have been fairly consistent over the past three years, in line with our expectation that capital will stay strong but has reached its peak. We positively regard risk management practices that include static hedges (for example, 20% and 40% equity market decline scenarios are common) to protect capital alongside dynamic hedges to protect earnings. We believe the current capital levels put the industry on a better footing if there is a repeat of the Great Recession.

Chart 4

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S&P Global Ratings believes that insurers will closely monitor capital to manage or mitigate changing economic and regulatory environments. Nonetheless, we continue to expect insurers to use what they deem excess capital for more traditional purposes of shareholder returns and M&A. Additionally, we believe that life insurers will continue to reinvest in the business with a focus on technology, innovation, new products and business models, and capabilities--all with an eye to ensure longer-term relevance.

Block M&A will remain a regular feature

M&A was active in 2019, as in past years. Block transactions have dominated domestic M&A and will continue to do so in 2020. By "block transactions," we mean insurers selling small parts or blocks of their operations--either those that are no longer integral to the company's overall strategy and are in run-off mode or those that may have heightened profitability or legacy issues. Most insurance M&As are reinsurance transactions, in which the buyer--generally a run-off specialist, reinsurer, or alternative capital investor--is looking to add scale and expand its core business.

In addition to block transactions, we have also seen companies divest segments that, although profitable, are no longer core to their future strategy--for example, Mutual of Omaha Insurance Co.'s sale of its banking operations to CIT Bank N.A. or Pacific Life Insurance Co.'s sale of its aircraft leasing subsidiary, Aviation Capital Group LLC, to Tokyo Century Corp. Over the past few years, we have also seen several acquisitions in the U.S. group benefits segment as competition in the sector intensifies and insurers seek scale in this generally profitable, highly capital-efficient business. The year ended with New York Life Insurance Co. announcing its intent to acquire Cigna Health and Life Insurance Co.'s group business, becoming a rare new entrant that is already at scale, as Cigna was a top player in the group space.

Barring a few, most transactions have been credit neutral, that is, supportive of our business risk and financial risk profile assessments, and therefore we did not take any rating actions. In our rating assessment, particularly for acquirers of legacy blocks, we will continue to focus on their risk tolerance, pricing discipline, and business concentration to assess if portfolios are overly made up of risky products.

Table 1

Life M&A Activity: Block/Flow M&A Deals That Remain Active - Less Block Transactions
Acquirer Target block/company Transaction size Announcement
New York Life Insurance Co. Life Insurance Co. of North America and Cigna Life Insurance Co. of New York (group life and disability business) $6.3 billion 12/18/2019
Resolution Life Voya Financial (individual life, legacy fixed, and VA and PRT blocks) $1.1 billion 12/18/2019
Tokyo Century Corp. Aviation Capital Group (formerly owned by Pacific Life) Not disclosed – TCC increased stake to 100% in ACG 9/9/2019
Prudential Financial Assurance IQ $2.35 billion 9/5/2019
CIT Group Mutual of Omaha’s saving bank subsidiary $ 1 billion purchase price 8/13/2019
Kuvare US Holdings Inc. Lincoln Benefit Life Co. (whole company acquisition) About $11 billion of statutory liabilities 7/25/2019
Principal Financial Group Wells Fargo’s Institutional retirement and trust business $1.2 billion purchase price 4/9/2019
American Family Insurance Ameriprise’s Auto & Home business $1.05 billion purchase price 4/2/2019
Global Atlantic Portion of Ameriprise’s Fixed Annuity policies $1.7 billion of fixed annuity 3/19/2019
Protective Life Corp. Majority of Canada Life’s U.S. individual life and annuity business $1.2 billion purchase price 1/24/2019
What sales trends and product structure tell us about risk taking

We are seeing a long-term trend of life insurers shifting their focus to fee business from spread-based business in light of low interest rates. A classic example is Voya Financial Inc.'s evolution from its ING predecessor over the last few years. Voya shifted its attention from diversified fixed and variable annuities and protection businesses to today's focus on AUM and employee benefits.

We expect protection business to continue to grow by low single digits. Consequently, life insurers' business mixes will rebalance as other segments offer greater growth potential in the face of an aging consumer base with greater retirement and wealth management needs.

We observed the evolution of product structures over the last few years that emphasize risk sharing and less generous guarantees. For instance, fixed indexed annuities (FIAs) cap the performance of an underlying equity index with a zero floor for downside protection. Likewise, structured VAs, also known as registered index-linked annuities (RILAs) or "buffered" VAs, do not eliminate but definitely limit market risk inherent in traditional VAs through downside market risk-sharing features (chart 5 depicts these structures).

Structured annuities are the next-generation VAs

The long decline in VA sales seemed to come to a short halt in 2018 with 2% growth after the demise of Department of Labor rules. However, through the first nine months of 2019, VA sales have once again reversed course and become flat.

Where we are seeing growth in the VA sales is in buffered VAs or RILAs, representing 20% of the VA market--a concentration that grew 63% through the first nine months of 2019. A hybrid between an FIA and a VA, this structured product invests policyholder funds in the insurer's general account and ties accumulation to an index, sharing more upside gains with the policyholder than an FIA would, while sharing less downside loss with the policyholder than a VA does.

We consider structured annuities to be the next-generation VAs, solving a market need but with a risk-sharing feature, which differentiates it from traditional VAs. Structured annuities basically are a sweet spot between FIAs and traditional VAs (see chart below). They are also less complex than traditional VAs but still complex enough to be sold only through registered security professionals.

Chart 5

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Structurally, the shape of the "hockey stick" of structured annuities compared with VAs is less risky and easier to hedge for insurers. Nonetheless, as the structured annuities market gains more popularity, living benefit features are increasingly being offered, whereas these riders did not exist just a few years ago. Accordingly, 15% of new structured annuity sales during the third quarter of 2019 included guaranteed living benefit features, compared with 3% in second-quarter 2019, according to the Life Insurance Market Research Assn.

Structured annuities cannot escape the propensity to offer living benefits riders to close the deal, because until now the products' lack of complexity made them subject to commoditization. Furthermore, low interest rates have made these "paychecks for life" an attractive downside protection feature for annuityholders. Without these features, competitive pressures would reduce the appeal of VA products--both traditional and next-generation--compared with typical mutual funds.

Accordingly, we believe living benefits in one form or another are here to stay. We will continue to monitor this new development mainly because, from a risk point of view, the products sold with living benefits generally have higher risk than those without living benefits.

FIAs: New entrants and new distribution

Despite low interest rates and subsequent pricing actions taken by several prominent insurers (including reducing caps, participation rates, etc.), FIA sales were up by 13% through the first nine months of 2019, compared with the same period in 2018. The uncertainty about Department of Labor fiduciary rules that affected 2018 sales dissipated in 2019. Many large insurers that had been on the sidelines just a few years ago have entered this market.

We expect to see continued pricing competition and changes to market shares and rankings. FIA accounts for 30% of total annuity sales, and we believe in the next few years it may surpass VAs' market share (which now accounts for 41% of total annuity sales) or at least that of VAs excluding structured annuities.

As the equity market is in an upswing, the focus has been on accumulation, and we observe lower utilization rates for those contracts that have guaranteed features. While guaranteed-income products primarily sold through insurance marketing organizations continue to dominate the FIA market, we are also seeing growth in accumulation market and fee-based solutions, mainly sold through banks and broker-dealers. Nonetheless, as crediting rate cuts are becoming more prolific in light of lower interest rates, sales in the fourth quarter of 2019 and possibly for the first half of 2020 will likely dampen.

Going long on longevity risk is a growing area of risk taking

We think that longevity is going to be increasing and will play a greater role in insurance companies' risk profiles. The pension risk transfer market demonstrated another strong year, with a 4% increase in sales in the first nine months of 2019, compared with the same period in 2018. This is a segment where we believe there is both demand and supply. While just a handful of players dominate the mega market, the small-to-midsize plan market has attracted many competitors.

Also, as competition intensifies, more and more insurers are willing to accept deferred lives (nonretired pensioners) to be part of upcoming deals. We consider deferred lives as more risky than retired lives, based on a higher possibility of mispricing longevity and market risk over a longer-tailed liability. Accurate pricing of these long-dated liabilities will be a key differentiator between companies in the long term.

We will continue to monitor company's balance-sheet strength and their risk tolerances. Some companies are also looking at risk-sharing mechanisms like reinsurance solutions or collaborating with another insurance company for larger deals. Regulatory changes, the cost of managing pension plans, and capital market volatility will continue to propel employers to offload their pension liability, and considering insurers are well positioned to manage this long-tail risk, we believe this market will remain attractive. We believe deal activity, although lumpy, should remain robust in 2020.

Hybrid/combo long-term care (LTC) products will grow in 2020

Stand-alone LTC products are a dying breed. But the demand for a solution to LTC expenses hasn't dissipated. The LTC-combo product has grown in recent years, which accounted for almost 27% of total U.S. individual life sales in 2018, according to LIMRA. We expect these LTC-combo products to see continued growth, with increasing insurer participating resulting in a fairly competitive marketplace. We consider these combo products to be less risky than their older stand-alone LTC cousins. They won't be an equivalent substitute to the benefit-rich, original stand-alone LTC insurance products. But they could offer LTC benefits to policyholders, while also providing a way to better manage the LTC risk for insurers.

Beyond 2020: Opportunities And Challenges

Beyond 2020, the areas we remain focused on are regulatory changes (for instance, a statutory update for VA reserving), accounting changes (the Federal Accounting Standards Board's long-duration contracts), technological changes (simplified underwriting, genomics, and gene testing), asset risks, and changing trends in population mortality.

Life insurers not ready yet for GAAP accounting update on long-duration contracts

We expect these long-duration targeted improvements to have a significant impact on the U.S. life insurance industry--in particular, they could drive many insurers to shift their strategies as a result of increased volatility of reported generally accepted accounting principles (GAAP) capital and earnings (see "Credit FAQ: GAAP Accounting Standard Changes Could Propel Long-Term Shifts In Life Insurers' Strategies," published Oct. 28, 2019) (see table 2 for the four proposed changes).

Table 2

Proposed Changes For Long-Duration Contracts
Proposed change Description Our view of the potential impact
Calculation of the liability for future policy benefits The current method of "locked-in" assumptions and loss recognition testing will no longer be in place. For certain products, assumptions related to mortality, longevity, and morbidity need to be updated annually based on current experience, along with a discount rate that reflects current market conditions. Provisions for adverse deviations are removed. This will likely lead to higher volatility in GAAP financial statements of our rated insurers. Users of financial statements will have to balance increased transparency with increased volatility in reported numbers.
Deferred acquisition costs The DAC amortization schedule will be simplified, with a more straight-line approach. We view this simplification of DAC amortization as a positive for analyzing financial statements.
Market risk benefits This new liability on the balance sheet will show the fair value of any guaranteed benefit for deposit-type contracts. Insurers that don't currently use the fair-value method will see an impact on shareholders' equity at implementation. Longer term, we view this update to be a positive standardization for such liabilities.
Enhanced disclosures Insurers will have to provide more information regarding key aspects of the underlying profitability of the business, such as changes to the future policy benefits, DAC, and market risk benefits. We always support increased transparency in financial statements.

Implementation was extended to 2022 from the original 2021 target, and we think life insurers need this extra time to make the deadline because these new rules apply not just to new business but all in-force blocks. We expect most life insurers will assume the modified retrospective approach (also known as the pivot approach), with a more detrimental impact to balance sheets on Day One compared with the full retrospective method.

Under either approach, we anticipate greater volatility for both reported earnings and capital for each reporting period. In general, we don't change our ratings based on revisions to accounting standards because accounting does not necessarily reflect the true economics of a business. But to the extent increased disclosures reveal deficiencies in a company's financial risk profile, we could change our ratings. Likewise, rating changes may follow longer-term shifts in insurers' strategies in response to these new rules.

The effect of the statutory VA update will differ by individual insurer

The NAIC is updating its rules for VA reserves and capital requirements. Key changes include the use of more prescribed assumptions, increased hedge admissibility, and better alignment of reserves and total assets required. These NAIC VA rules are effective 2020, with the option of a phase-in period. The impact will differ by individual insurer based on the type of VA with living benefits they have in their portfolios; current underlying assumptions about lapses, rates, etc.; and current reserve levels, hedging practices, and use of permitted practices. These new rules also reduce the incentives for life insurers to use captives.

We expect a limited number of insurers to opt for early adoption of these rules in 2020. For example, Brighthouse Financial, Inc., AXA Equitable Holdings Inc., and Jackson National Life Insurance Co. have announced their intent to do so, and in doing so have shared their mixed expectations for impacts to capital. Eager to receive full credit for their economic hedging programs under the new NAIC VA rules, some insurers, such as Jackson and AXA, early adopted the reform. In our capital analysis on Brighthouse, we took into account that this early adopter has already made the necessary capital-related changes related to the upcoming regulatory VA reform to support our rating expectations. Insurers view these updates as economic, unlike updated capital charges related to tax reform, and those insurers that take a risk-based capital hit will try to find ways to recoup their capital to what it was before they adopted the new standards. At this time, we don't expect rating changes based on this update alone, but we will continue to assess the secondary impact of these new rules.

SECURE Act and simplified underwriting

Congress passed the Setting Every Community Up for Retirement (SECURE) Act with the year-end 2019 spending bill, expanding access to workplace retirement plans for millions more full- and part-time workers, particularly small-business employees. Basically, the SECURE Act levels the playing field between life insurers and mutual funds, as life insurers now have an elevated seat at the 401(k) table. Annuities with lifetime guarantees will become a viable option within 401(k) plans. However, it remains to be seen whether this new law will propel a large emergence of sales in an expanded employee marketplace.

Traditional life insurer sales growth may benefit from the increased use of simplified underwriting. Typically, simplified underwriting uses available data, without intrusive medical tests, to underwrite a life insurance policy efficiently. Once the industry achieves critical mass and experience in this underwriting process, we can better evaluate if underwriting standards are being compromised.

What would cause the industry outlook to become negative?

Potential downside scenarios that would cause us to revise our sector outlook to negative reflect our long-standing views:

  • Capital drain: Capitalization levels decline because insurers significantly reduce their strong capital buffers either via an unexpected increase in shareholder returns or from unexpected organic or inorganic expansionary moves.
  • Race to the bottom: In an effort to find growth, insurers increase their risk tolerances via increased product or pricing or asset risk, such as greater use of richer guarantees or aggressive underwriting assumptions related to rates or lapsation, or a deterioration of investment portfolios.
  • Market displacement: Dislocation in the capital markets from higher-than-expected corporate bond defaults results in more credit losses and worsening capital levels. Also, a significant spike in rates, say 300 basis points over a short period of time, could increase disintermediation risk. Additionally, a severe drop in the equity markets could hurt insurers with meaningful market-exposed guarantees on their books.
Data behind our ratings outlook

We provide an outlook on each of our issuer credit and financial strength ratings. The purpose of the outlook is to indicate the likelihood of a rating change in the near term (12-month horizon for a speculative-grade credit and 24 months for an investment-grade credit). Just over 90% of our ratings had stable outlooks, 3% had positive outlooks, and the remaining balance either had negative outlooks, CreditWatch negative status, or CreditWatch developing status (see chart 6). This indicates we expect an equilibrium of rating actions up and down for our rated U.S. life insurers in 2020.

In addition to outlooks, another indicator is actual changes in credit ratings. Rating actions were somewhat positive in 2019. We took eight rating actions (see chart 7): six upgrades and two downgrades. These changes were specific to the fundamental credit quality of each insurer and not related to any specific industry-level changes.

We view the industry as relatively well positioned to withstand the challenges it faces, primarily through its continued focus on retaining strong levels of capital and liquidity. We expect the current rating distribution (see chart 8) to persist, with close to 90% of rated life insurers in the 'A' and 'AA' categories.

Chart 6

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Chart 7

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Chart 8

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This report does not constitute a rating action.

Primary Credit Analysts:Tracy Dolin, New York (1) 212-438-1325;
tracy.dolin@spglobal.com
Neil R Stein, New York (1) 212-438-5906;
neil.stein@spglobal.com
Heena C Abhyankar, New York + 1 (212) 438 1106;
heena.abhyankar@spglobal.com
Secondary Contacts:Deep Banerjee, Centennial (1) 212-438-5646;
shiladitya.banerjee@spglobal.com
Peggy H Poon, CFA, New York (1) 212-438-8617;
peggy.poon@spglobal.com
Katilyn Pulcher, ASA, CERA, New York (1) 312-233-7055;
katilyn.pulcher@spglobal.com
James Sung, New York (1) 212-438-2115;
james.sung@spglobal.com
Anika Getubig, CFA, New York + 1 (212) 438 3233;
anika.getubig@spglobal.com
John J Vinchot, New York + 1 (212) 438 2163;
john.vinchot@spglobal.com
Ieva Rumsiene, Centennial + 303-721-4734;
ieva.rumsiene@spglobal.com
Carmi Margalit, CFA, New York (1) 212-438-2281;
carmi.margalit@spglobal.com
Harshit Maheshwari, Toronto;
harshit.maheshwari@spglobal.com

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