What’s Ahead for Life Insurance and Annuity Products?
Karen R. Terry, FLMI, Assistant Vice President, Insurance Product Research, LIMRA and LOMA; Keith Golembiewski, Assistant Vice President, Annuity Research, LIMRA and LOMA
February 2024 The past few years have been a roller coaster ride of pandemic impacts, interest rate increases and regulatory changes. At this point, indications appear to be leaning toward a return to a more stable environment and a return to steady growth trends for individual life in 2024 and annuities in 2025.
Life and annuity sales are impacted by both economic and noneconomic factors. Looking ahead to the next few years, we expect relief from some negative economic and regulatory trends, as well as some new challenges.
Economic Factors
Interest rates impact both products heavily. Declining interest rates have put pressure on individual life profitability for years, but rising rates present new challenges, impacting hedge budgets and cap rates for indexed universal life (IUL), dividend scales for participating whole life, and putting pressure on private placement viability. Further increases will continue the pressure on these products/solutions. On the positive side, continued rate increases may cause carriers to begin increasing crediting rates on their fixed products. For individual annuity products, the boost in interest rates has brought the market to a new era, with crediting rates on fixed annuity products, as well as payout rates on income annuities and guaranteed living benefits bringing individual annuity sales to record highs in 2023.
Inflation limits consumer disposable income available for life and annuity premiums. Fortunately, inflation is beginning to moderate and is projected to fall to around the 2 percent Federal Reserve target by the end of the year.
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Other factors impact some products more heavily than others. Equity markets impact variable product appeal. Moody’s currently projects the S&P 500 to increase through 2028. Unemployment most heavily impacts term life insurance, which has a more middle-market clientele. The unemployment rate has held below pre-pandemic rates after a brief uptick in 2020, helping term sales. Unemployment is expected to trend up through 2025, peaking just below 5 percent.
Noneconomic Factors
A persistent demographic shift will ...
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