S&P Global Ratings managing directors Carmi Margalit and Neil Stein shared their insights on the insurance industry outlook for the second half of the year during a recent webinar. When asked about S&P’s economic outlook for the U.S. economy, Margalit replied, “It ain’t great.” The firm predicts U.S. economic expansion will slow sharply in 2025 and remain below the long-term average, driven by uncertainty and tariffs.
Economic Uncertainty and Tariffs
“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 explained. Despite this 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.
Life Insurance Sector Performance
S&P observed earnings surge year over year and improved investment income in the fourth quarter of 2024. Margalit noted that while the potential slowing of the U.S. economy and the risk of recession might hamper the life sector’s profitability and growth, sales – especially annuity sales – grew rapidly over the past two years, and profitability is solid.
Property/Casualty Insurance Challenges
The property/casualty insurance sector also received a stable rating from S&P, despite recovering from a high number of natural catastrophes last year. Neil Stein highlighted that a series of 14 wildfires in southern California from Jan. 7 to Jan. 31, 2025, resulted in significant losses for the industry. The P/C industry’s insured losses in the first quarter of 2025 exceeded $53 billion, with $38 billion attributed to the California wildfires.
Impact of Natural Catastrophes
“This singular event far exceeds any other losses from wildfires, droughts and heatwaves,” Stein said. Although P/C insurers entered 2025 with substantial capital buffers, the size of the loss “has rapidly depleted the catastrophe budgets of many insurers and reinsurers,” he added. S&P is monitoring how this will impact the rest of the year.
Tariff Implications for P/C Insurers
Tariffs are expected to impact rebuilding costs after catastrophes, potentially weakening consumer spending and increasing prices for materials like steel and lumber. Stein noted that while some issues, such as supply chain disruptions and labor shortages, are similar to those experienced during the COVID-19 pandemic, it’s too early to predict the full impact on P/C insurers.
