U.S. life and annuity issuers are strong, did very well in the fourth quarter and look as if they will continue to do very well, but a trade war could hurt their investments.
S&P Global Ratings analysts talked about the possible effect of the economic conflict pitting the United States against Canada, Mexico and Europe during a webinar Thursday.
If the trade war gets worse and hurts the overall economy, that could hurt the portfolios of bonds and other assets that life and annuity issuers use to support obligations to insurance policyholders and annuity contract holders, the analysts said.
In that scenario, "the impact is so broad for corporates and strikes so many different sectors that there's not really a clear defensive posture the companies can take," according to Shelby Merberg, an S&P analyst. "There are so many knowns to deal with."
What it means: S&P analysts are still trying to figure out what a trade war might mean.
The quarter: S&P held the webinar to go over insurers' performance in the fourth quarter of 2024.
Life and annuity sales were strong, capital levels are strong, and the companies expect annuity sales to stay strong, Merberg said.
Insurers "believe there's a big, fundamental demand for these retirement products," Merberg said.
S&P is watching for signs that effects of the COVID-19 pandemic and work-from-home trends could hurt insurers' investments in commercial real estate, but, so far, losses have been small, Merberg said.
The economic backdrop: S&P is still using an economic outlook statement that shows the U.S. economy growing steadily over the long term, with inflation moderating, interest rates edging lower and unemployment holding steady.
But "we published this late last year, and, even then, we noted the significant policy uncertainty around this forecast," said Carmalit Margalit, the life insurance sector lead for North America at S&P. "Since we published this, a lot has happened in the U.S. economy."
Now, Margalit said, economists believe that the risk of the U.S. economy entering a recession by the end of the year could be as high as 25%.
"That's driven by the policy changes around trade, the changes around immigration and the cuts to the federal government, and the uncertainty around these changes," he said. "That uncertainty, in and of itself, may cause businesses to pull back, and that decrease in domestic demand can also have a chilling effect on the U.S. economy."
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