Moody’s reports that the insurance sector has changed significantly in the five years since COVID-19. The pandemic reshaped several industries, including insurance.
Increased mortality, interest rate shifts, and commercial real estate volatility drove much of this change.
Life insurers felt the immediate impact through higher death rates. Yet, insured mortality remained lower than the general population, especially in individual policies. This limited the rise in death benefit payouts. By 2024, mortality trends for most life insurers returned to pre-pandemic levels.
U.S. individual life insurance premium is on track to reach a record $16 bn in 2024 and continue growing in the current year, as the market continues riding a bounce first seen during the COVID-19 pandemic, according to LIMRA Report.
Market conditions are very favorable for the individual life insurance market. In 2024, we expect total premium to be level with or above the record set in 2023 (up 1% to 5%).
While there may be shifts in the product mix, LIMRA is forecasting 2025 sales growth to improve — increasing between 2% and 6%.
Longer-term effects stemmed from rate changes and weak commercial property markets. Rising interest rates, while initially difficult, improved product margins and strengthened insurer balance sheets. Life insurance and annuity products became more attractive.
However, commercial real estate continues to underperform. After dropping 5% in 2022, term life sales rebounded the following years driven by digital platform expansions and competitive pricing. Premium will remain level in 2024 and grow 1% to 5% in the full year 2025.
Life insurers, who often hold large investments in this sector, remain exposed. Despite better credit conditions, poor returns in commercial property weigh on financial results.
Insurers have mitigated this through diversified investments and disciplined financial controls.
By 2024, life expectancy in many countries recovered. Still, future mortality trends remain uncertain. The U.S. life insurance industry saw a 13% increase in pretax operating income in 2024, driven by higher interest rates and strong investment returns, despite a slight decline in interest margins, according to Fitch Ratings.
Annuity sales hit a record $432 bn, with significant growth in fixed indexed and variable annuities. Fitch forecasts a decrease in the U.S. 10-year treasury rate to 4.2% by the end of 2025.
Health conditions worsened during the pandemic—obesity and inactivity are key concerns. These affect how insurers assess risk and price products, especially in pension risk transfer markets.
Moody’s warns that health issues will shape the industry’s path forward. Insurers must reflect this in pricing and capital planning.
The report notes that firms are reviewing their risk models. With volatile mortality rates and shifting economic trends, insurers must revise underwriting methods, update product lines, and reallocate capital to stay profitable.
While COVID-19’s direct effects have lessened, the broader impact on the insurance market remains. Insurers must stay alert, manage new risks, and adjust strategies in response to permanent structural shifts caused by the pandemic.
