Life Insurance Reserves Shift Toward Annuities, Credit Quality Declines

AM Best report finds over one-third of annuity reserves now held by lower-rated companies

Apr. 10, 2026 at 1:56pm

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A dramatic close-up photograph of the intricate mechanical components of a banking vault or safe, conveying a sense of the complex, high-stakes machinery underlying the financial security of retirement savings.The growing concentration of annuity reserves among lower-rated insurance companies exposes the complex, high-stakes machinery underlying the financial security of retirement savings.Oldwick Today

A new analysis by AM Best reveals that funds held to back individual annuity policies now account for over 36% of the U.S. life/annuity insurance segment's overall reserves, up from 32% prior to the 2008 financial crisis. The report also notes that a larger portion of these annuity reserves have shifted to companies with an AM Best Credit Rating that is nearly two notches lower compared to 2007.

Why it matters

This shift toward annuity products and lower-rated companies holding those reserves raises concerns about the overall financial strength and credit quality of the life insurance industry. It could signal increased risk and potential challenges for consumers relying on annuities for retirement income.

The details

The report found that approximately one-third of the segment's annuity reserves are now tied to the balance sheets of 95 companies that have a lower Long-Term Issuer Credit Rating now than they did in 2007. Publicly traded companies account for almost half of these reserves, but privately held companies saw the largest average downgrade. This has been driven by newer entrants assigned lower ratings, as well as established life/annuity companies that have been downgraded.

  • The shift toward annuity products has occurred since the 2008 financial crisis.
  • The credit quality of companies holding annuity reserves has declined from 2007 to 2025.

The players

AM Best

A global credit rating agency, news publisher and data analytics provider specializing in the insurance industry.

Erik Miller

Senior director at AM Best.

Jason Hopper

Associate director at AM Best.

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What they’re saying

“This has been driven by newer entrants that have been assigned lower ratings, as well as established life/annuity companies that have been downgraded.”

— Erik Miller, Senior director

“Interest rates have begun to decline, and new growth may begin to taper off. The MYGA space is already very competitive, market share is tighter, and we may be approaching a time when it may be too late for new entrants to capitalize.”

— Jason Hopper, Associate director

What’s next

AM Best plans to continue monitoring the shift in life insurance reserves toward annuity products and the potential impact on the industry's overall credit quality.

The takeaway

The growing concentration of annuity reserves among lower-rated insurance companies raises concerns about the financial stability of the life insurance industry and the risks facing consumers who rely on annuities for retirement income. Regulators and industry analysts will likely scrutinize these trends closely in the coming years.