Best’s Market Segment Report: COVID-19 Pandemic Exacerbates U.S. Fraternals’ Challenges

·3-min read

The U.S. fraternal life industry, which already in having difficulties generating premium and growing membership, now is dealing with the additional challenges created by the COVID-19 pandemic, according to a new AM Best report.

A new Best’s Market Segment Report, titled, "COVID-19 Pandemic Exacerbates U.S. Fraternals’ Challenges," states that premiums for the 44 U.S. life fraternal companies as of year-end 2019 remained relatively flat year over year at $10 billion, and showed a modest slide in first-half 2020, mainly due to the pandemic. Additionally, net income in 2019 dropped by nearly 10% to $1.4 billion, and through second-quarter 2020 stood at $298 million. The three largest insurers, Thrivent Financial for Lutherans, Knights of Columbus and Modern Woodmen of America, have been the main drivers of performance, generating over 75% of the market’s NPW.

Although the fraternals’ operating results decreased slightly in 2019, overall, it was a positive year, according to the report. Generally, the segment’s operating results run lower than for the rest of the life/annuity industry. Although fraternals are tax-exempt, their expenses tend to be higher than those of taxable organizations due to fraternal spending and policyholder dividends, resulting in lower operating gains. However, members have strong bonds with their societies, resulting in much lower lapse rates. Ordinary life insurance persistency rates have remained substantially higher than for the industry as a whole for the past five years as well.

The industry thus far has not been overwhelmed by higher mortality from the pandemic. While COVID-19-linked deaths are high, this has been somewhat offset by lower mortality from accidents. Amid the economic challenges, AM Best has seen fraternal insurers change strategies, with an expectation that in 2021, these issues will continue to affect an organization’s liquidity and investment portfolios.

AM Best revised its outlook to negative from stable for the entire U.S. life/annuity segment in March 2020, as the COVID-19 virus added significant volatility and uncertainty to the financial markets, record low levels for 10-year Treasury yields and a flattened yield curve. However, AM Best’s fraternal ratings remain favorable.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=302511.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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