Asset Allocation Economics Outlook Alternatives Fixed Income White Paper

The Road Ahead: 2025 North America Insurance Outlook

06 January 2025

2 min read

What You Need to Know

Key themes we see emerging for insurance investors in 2025 involve duration positioning, managing credit exposure, exploring relative-value opportunities, tapping the potential of private markets, and portfolio-liquidity and cash-management considerations.

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Authors

Geoff Cornell, CFA| Chief Investment Officer—Insurance

Gary Zhu, CFA| Deputy Chief Investment Officer—Insurance

Deanna Leighton, CFA| Lead Portfolio Manager—Insurance Portfolio Management

As we get ready to close the books on 2024, the US economy continues to expand, though the labor market has weakened, painting a picture of a coming deceleration in growth. With both growth and inflation likely to continue slowing, the door is wide open for the Federal Reserve to continue rate cuts, which should forestall a more negative economic outcome. Still, the path of interest rates isn’t certain and some inflation risks remain. A policy regime change from new US leadership creates uncertainty, and continued geopolitical tension bears monitoring.

North America insurance market growth remains fragmented. Life insurance in force has extended its decade-long flat trend, while annuity sales continued outpacing other life products. Growth was driven mainly by record fixed annuity sales: annual sales have nearly tripled since 2021, as higher rates have made these products more attractive to policyholders. Variable annuity sales have rebounded to 25% growth year to date, driven by record sales in registered index-linked annuities, up 39%.

Annuities tend to have much shorter contract durations than traditional life and long-term-care products, creating a home for shorter duration assets with attractive yields—breaking the mold of insurers investing solely in long-duration assets. It can also be argued that insurers could be a better asset liability management (ALM) fit than banks in providing long-term financing. Life insurers with spread-lending capabilities continue optimizing their funding sources, such as Federal Home Loan Bank (insurers’ usage has topped $160 billion) and funding agreement backed notes (issuance is up over 50% year-over-year).

In an even more fragmented property and casualty market, more-frequent catastrophes have increased claims, creating a liquidity need for certain insurers. Some others have benefited from rising property values which have led to high insured value, higher premium, and higher investments needs. We’re seeing a shift in investment strategy from capital gains to a more balanced approach between income (book yield) and total return while also balancing equity gains with fixed-income losses. The use of reinsurance strategies continues.

Reinsurance volumes have picked up in 2024 after a quieter 2023, with Bermuda remaining the preferred offshore choice. The reinsurance market bears watching: heavier healthcare use and medical cost inflation could prompt more transactions, perhaps spurred by the recent announcement of a Manulife-LTC transaction. Reinsurance sidecar launches and new fund raising is up, as asset managers, insurers and other interested parties seek more ways to tap into the value in the insurance sector.

We expect these trends to continue, influencing insurance investment strategy. As we prepare to head into 2025, we see a few key themes emerging:

Maintain duration positioning close to target and be nimble on fixed vs. floating rate exposure
Emphasize quality and diversification as the credit environment softens
Express relative value views through marginal changes to allocations and liquidity raises
Favorable supply from bank pullback and demand technical from strong annuity sales would provide plenty of access to private market potential…but diversify across existing and new opportunities
Maintain focus on portfolio liquidity and cash management

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The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

About the Authors

Geoff Cornell, CFA

Geoff Cornell is a Senior Vice President, Chief Investment Officer (CIO) of Insurance and a member of AB’s Operating Committee. He oversees AB’s Insurance Investment Management team, as well as insurance sales, solutions, relationship management and client-service efforts, and shares accountability for insurance marketing, accounting and operations with our centralized Marketing and Operations teams. Cornell partners with broader investment teams and the firm’s Business Development and Product Strategy & Development teams to deliver new insurance solutions and pursue inorganic opportunities. He provides investment oversight for the general account portfolio of AB's biggest insurance client, Equitable. Cornell joined AB in 2024 as the firm’s first CIO of Insurance. Prior to joining AB, he spent 30 years at AIG, where he held roles focused across asset classes and insurance portfolio management, most recently as the CIO of AIG’s life and retirement business (now known as Corebridge Financial) and the deputy CIO of AIG. Cornell holds a BS in business administration from Bryant University and an MBA from Fordham University. He is a CFA charterholder. Location: New York

Gary Zhu, CFA

Gary Zhu is a Senior Vice President and Deputy Chief Investment Officer of Insurance, where he is responsible for portfolio performance, strategic positioning and customized investment solutions for AB’s Insurance platform. Zhu joined AB in 2020 as the global head of Multi-Sector Insurance on the Fixed Income team, primarily focusing on developing and implementing multi-sector income portfolio strategies. In 2021, he was named director of Insurance Portfolio Management, where he led AB Fixed Income’s insurance business. Under Zhu’s leadership, the Multi-Sector Insurance team was named Investment Team of the Year in 2022 and 2023 by Insurance Asset Risk. He is also a portfolio manager in the US Investment Grade Credit and Sustainable Thematic Credit teams. Prior to AB, Zhu was a senior publishing research analyst and the head of cross-sector research at Wells Fargo Securities. He ranked first for cross-asset strategy in the 2019 Institutional Investor survey and earned the title of Best Cross-Asset Analyst in Global Fixed Income Strategy. Before joining Wells Fargo, Zhu was a senior securitized assets trader and portfolio manager at Genworth, where he managed ~$10 billion of fixed-income investments. Prior to his portfolio-management role, Zhu helped manage Genworth’s $70 billion general account, with a focus on US and European banking exposures during the 2008 financial crisis, and held various roles across the company. He holds a BS (summa cum laude) in finance and economics from Virginia Commonwealth University and an executive MBA (with Dean’s Honors) from Columbia Business School. Zhu is a CFA charterholder and holds the Fellow, Life Management Institute designation. Location: New York

Deanna Leighton, CFA

Deanna Leighton is a Vice President and Lead Portfolio Manager on the Multi-Sector Insurance Portfolio Management team, where she is responsible for formulating insurance portfolio allocation strategies, overseeing daily portfolio-management activities and leading insurance-specific cross-sector, relative-value discussions. Leighton leads the Macro Allocation and Strategy team that interfaces with AB Insurance’s strategic clients in building tailored liability-driven and asset-focused solutions. She uses her deep understanding of both cross-asset investments and insurance company needs to construct tactical and dynamic investment portfolios and co-leads AB’s biggest insurance client’s spread-lending strategies. Leighton is a frequent speaker at industry conferences, and she moderated the inaugural Private Credit panel at ABS East in 2023. Prior to joining AB in 2022, Leighton was a fixed-income portfolio manager at AIG Asset Management, where she oversaw around US$5 billion of high-yield bond investments and helped build AIG’s third-party asset-management business, contributing to its strong commercial success. Before this role, she was an associate portfolio manager for AIG Asset Management’s high-yield bond portfolio. Leighton holds a BA with a concentration in economics from the University of Michigan and is a CFA charterholder. Location: New York

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