Best’s Special Report: Annuity Sales Supporting Growth of U.S. Fraternal Organizations

Premium levels increased for fraternal organizations on an aggregate basis in 2023, but still lag behind the overall growth rate for the U.S. life/annuity industry, according to a newly issued report by AM Best.

A Best’s Special Report on the fraternal segment notes that on a direct premium basis, higher interest rates help drive a 16% increase in annuity premium, but that pace trailed the overall L/A industry’s 22% growth rate. Net premiums written increased by approximately 13% to reach $11.9 billion in 2023, up from $10.5 billion in 2022.

“Fraternals have typically focused on expanding distribution and growing annuity sales, which are attractive products in a rising or higher interest rate environment,” said Ed Kohlberg, director, AM Best. “For some, significant new business acquisition costs such as commissions and required capital charges have negatively impacted risk-adjusted capitalization.”

According to the report, individual life premium declined by approximately 1%, but these products remain a focus for the fraternal segment. This stems from a higher interest rate environment that can support policyholder dividend rates and make fraternal products more attractive to consumers when compared with other companies.

The fraternal population has attempted to remain competitive with the rest of the L/A industry by guaranteeing higher minimum interest rates on individual annuity business. The higher crediting rates generally help limit any significant disintermediation risk given current interest rates—and fraternals have historically had more favorable annuity retention rates than the industry. “Members have strong relationships with their fraternal societies, resulting in much lower lapse rates,” said Stratos Laskarides, senior financial analyst, AM Best.

These fraternal organizations are regional insurers and can account for up to a quarter of the insured lives in more rural states, highlighting the valuable role these types of companies play in closing mortality protection gaps in certain areas of the country. The fraternal industry continues to focus on enhancing common bonds with members by leveraging technology, launching new products, and enhancing the member experience when purchasing insurance products.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=345030.

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 London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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