FORECAST 2025:
Economic Climate
FORECAST 2025: Economic Climate
Author
Jennifer Rankin
Contributing Editor
LIMRA and LOMA
January 2025
The insurance industry has a history more than a century long, surviving — even thriving — during tough times. It has weathered major wars, the Great Depression, plummeting interest rates, high inflation, pandemics and global financial meltdowns. That does not mean it was easy.
We asked FORECAST 2025 participants how current economic conditions — interest rates, inflation, market volatility and more — might affect their organization this year. They shared a variety of perspectives and coping strategies.
At the moment, inflation is subsiding, but consumer prices have yet to come down. Interest rates are falling, albeit slowly. Uncertainty and fluctuation continue to plague equities markets. No one knows what effect the Trump presidency will have. Few expect a recession any time soon.
“The interest rate environment, equity market performance, tax policy and economy can all influence product sales and product mix and/or financial results,” says Aaron Ball, EVP and Co-Head of the Foundational Business, New York Life. “As such, we anticipate that changes in interest rates, equity market volatility, tax law changes, inflation and/or a recessionary environment could influence sales.”
“Economic conditions can impact reinsurers and direct carriers differently — our business isn’t heavily affected by interest rates,” says Marc Giguère, President & Chief Executive Officer, Munich Re, U.S. Life and Health. “However, economic conditions will directly impact what products carriers sell and how much they sell. Also, decreasing interest rates can make many insurance products more expensive for customers.”
Inflation Matters
Let’s take a closer look at inflation. Its major effect is on consumer disposable income, especially that of the middle market.
“We know that inflationary concerns can have an impact on consumer buying practices,” says Virgil Miller, President, Aflac U.S., Aflac, “and when finances are tight, consumers may look to things like supplemental health coverage as something that they may no longer need.”
“While the rate of inflation has slowed,” says Sarah Mineau, SVP, Life/Health & Investment Planning Services, State Farm Insurance, “costs for basic necessities remain relatively high, leading to increased price sensitivity and decreased discretionary income among consumers. We anticipate customers — especially in the middle market — will continue to feel affordability challenges and look for guidance about the best, most efficient and effective protection — and investment products — to meet their needs.”
Wade Harrison, EVP & Chief Retail Officer, Protective Life, agrees. “Current economic conditions, such as inflation, also impact disposable income and can negatively affect life insurance sales in some distribution channels.”
Market Volatility
What about market volatility? Surprisingly, it can have an upside. More specifically, volatility is a favorable economic condition for fixed product sales.
“We’re certainly still in a period of challenges and uncertainties that are driving volatility,” says Chris Blunt, Chief Executive Officer, F&G. “However, this uncertainty continues to provide favorable economic conditions for annuity sales.
People are seeking solutions that can withstand market volatility, and demand for our fixed annuity products continues to grow as people plan for a retirement that could last 30+ years. Both retirees and financial professionals are turning more and more to fixed annuities as an alternative to the traditional 60-40 investment portfolio. F&G expects continued strong sales momentum in this space.”
Interest Rates
Interest rates — both high and low — affect the insurance industry in many ways. Low interest rates have the biggest effect on old blocks of business, squeezing product profitability. High interest rates, on the other hand, can protect company profitability.
“While sustained high interest rates improve product profitability and feature flexibility,” says Harrison, “they also attract new market entrants, increasing competitive pressures.”
“If the recent decline in interest rates continues throughout 2025,” says Bob Jurgensmeier, Chief Executive Officer, Ameritas Life Insurance Group, “we expect a modest slowdown in annuity sales and reduced surrender activity. Investing may shift as we look for higher-yielding assets with risk tolerance.”
“On the Allianz Life balance sheet,” notes Jasmine Jirele, President & Chief Executive Officer, Allianz Life Insurance Company of North America, “elevated interest rates will continue to have both positive and negative impacts on the overall business. On one hand, they will make our fixed index annuity (FIA) product offering more attractive for customers, a component to healthy premium inflows. On the other hand, the elevated rates continue to pose challenges to in-force business on the balance sheet as a large percentage of assets purchased in a lower rate environment will remain in unrealized losses, which doesn’t pair well when the policy lapse profile exceeds expectations.”
Strategic Intent
Forecast 2025 participants have strategies in place to cope with all economic contingencies.
“Our diversified business model ensures that we are well positioned to weather a variety of economic environments,” says Ball. “As we often say, ‘we don’t predict, we prepare.’”
“The external business environment and economic conditions are always evolving,” says Harrison. Protective continues to diversify its product mix to meet whatever challenges lie ahead. “During periods of economic uncertainty,” he says, “customers may prefer lower-risk products like fixed annuities over market-based products like variable annuities. A diverse product portfolio allows us to adapt to these changes and continue meeting our customers’ needs.”
“At Allianz Life, we have a broad suite of fixed index annuity (FIA) and registered index-linked annuity (RILA) products — along with indexed universal life (IUL) and buffered exchange traded fund (ETF) solutions — designed to meet consumer needs in a variety of economic and market scenarios,” says Jirelle. “This makes our business more resilient.”
“We plan for various economic condition scenarios as part of our enterprise risk management (ERM) efforts,” says Denise McCauley, President & Chief Executive Officer, WoodmenLife. “Part of our strategy has been to invest in technology and business process changes to drive efficiencies and address unit costs impacted by various economic condition scenarios.”
“We have spent a great deal of time on messaging and communication to reinforce the value of supplemental coverage and why consumers would gain value from keeping their benefits,” says Miller. “Additionally, we have taken specific steps to encourage customers to file wellness claims as a way of ensuring they get financial value from their policy, as well as endorsing our policies to increase benefit amounts at no additional cost to the consumer.”
“By staying agile and responsive to these economic conditions, we aim to maintain our competitive edge and continue delivering value to our customers,” says Harrison.
Adrian Griggs, EVP & Chief Operating Officer, Pacific Life, believes all of these challenges will abate in 2025. “Our base case on the economy is favorable,” he says. “Short-term rates are coming down, and the yield curve will be steeper. Inflation is largely under control. The labor market is still solid, and consumers are resilient. There is no recession in the near future. Liquidity in the capital market is good, and demand for risk assets is high.” He expects to see healthy growth in Pacific Life’s business across product lines and solid performance from its asset portfolios.
According to Forecast 2025 participants, then, the general economic outlook is positive. Should that change, they already have strategies for success in place — and, if necessary, the bench strength to create new ones.
