Insurance outlook stable despite pessimistic economic prediction

When asked about S&P’s economic outlook for the U.S. economy, Carmi Margalit replied, “It ain’t great.”

Margalit is S&P Global Ratings’ managing director and life insurance lead. He was one of the presenters on a recent S&P Global Market Intelligence webinar on the insurance industry outlook for the second half of the year.

“We are definitely seeing a slowdown in the growth in the U.S. economy,” Margalit said. S&P predicts U.S. economic expansion will slow sharply in 2025 and remain below the long-term average.

Uncertainty and tariffs are the two main forces driving that prediction.

“A lot of that uncertainty stems from the fact that A). Nobody really knows what the tariff policy will be. B). it’s hard to know what the impact of that tariff policy will be on various sectors,” Margalit said.

Fundamentals for outlook trending positive

Despite that pessimistic economic outlook, S&P’s outlook for the life insurance sector is stable. The fundamentals for life insurers – including interest rates, corporate bond defaults, and demographic trends – are largely trending positive, although some risks persist.

Margalit said the potential slowing of the U.S. economy and the risk of recession might hamper the life sector’s profitability and growth. However, sales, especially annuity sales, grew rapidly over the past two years, and profitability is solid.

Looking at life insurance in the fourth quarter of 2024, S&P saw earnings surge year over year and improved investment income.

Natural catastrophes impact P/C insurers

The property/casualty insurance sector also earned a stable rating from S&P, despite the industry recovering from a high number of natural catastrophes last year, said Neil Stein, S&P Global Ratings’ managing director and P/C insurance lead.

From Jan. 7 to Jan. 31, 2025, a series of 14 wildfires in southern California “created a significant event for the P/C industry,” Stein said. The P/C industry’s insured losses in the first quarter of 2025 exceeded $53 billion, the highest quarterly loss since 2011. Of that amount, $38 billion – or 71% – resulted from the California wildfires.

“This singular event far exceeds any other losses from wildfires, droughts and heatwaves,” Stein said.

P/C insurers entered 2025 with substantial capital buffers, he said. But because the wildfires represented the first major natural catastrophe loss of the year and because of the size of the loss, “we think it has rapidly depleted the catastrophe budgets of many insurers and reinsurers,” he said.

“How will it impact the rest of the year? That is something that we’re certainly watching.”

Tariffs are expected to impact the cost of rebuilding after a vehicle accident or a catastrophe. But Stein said it’s too early to predict what the impact of tariffs will be on P/C insurers.

“Tariffs could weaken consumer spending,” he said. “The cost of imported vehicle parts could go up, but parts from North America may not be as impacted as those from abroad. Homeowners will see increased repair costs. Steel and lumber prices are expected to increase. Supply chains could be disrupted, and there could be some labor shortages.

“But some of these issues are not unlike those that plagued the industry during the COVID-19 pandemic.”

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].