Emerging trends in Institutional markets: Key insights Q1, 2025

By:  Diana Schneider

Head of Institutional Solutions for MassMutual.

As we enter the first quarter of 2025, institutional markets are facing an evolving landscape shaped by economic shifts and interest rate uncertainties with significant impact on business dynamics that require close attention. To best manage, businesses will need to focus on strategic solutions, quality assets, and strong partners to navigate these changes effectively.

Economic shifts and interest rate uncertainty

The current economic environment following the election cycle remains fluid. Uncertainty continues to be a significant factor, with questions outstanding over upcoming policy decisions, evolving perspectives on inflation, and the overall trend in interest rates. Long-term strategies that prioritize quality investments should be emphasized. Institutions will need to adjust their investment portfolios with dynamic risk management strategies that can mitigate potential short-term volatility while focusing on long-term stability.

Pension liability management

Pension liability management continues to be a critical concern for large employers. With elevated equity market valuations and uncertainty ahead, many plans are taking advantage of the opportunity to focus on risk mitigation techniques such as liability-driven investing (LDI) and pension risk transfer (PRT) strategies to manage liabilities. Insurers have a high degree of skill in managing long-term risks, which makes them uniquely qualified to manage pension liabilities. In addition, insurance regulatory requirements cause insurers to hold robust reserves and surplus that are designed to ensure that they can meet their obligations to policyholders, including PRT annuitants. This focus on risk management is essential as institutions navigate economic pressures, rising costs, and fluctuating pension benefit obligations, with many selecting high quality insurers to manage risk.

Institutional insurance: BOLI & COLI

The institutional insurance market, particularly Bank-Owned Life Insurance (BOLI) and Corporate-Owned Life Insurance (COLI), is facing increasing pressure due to macroeconomic factors. The current environment — marked by higher interest rates and capital pressure on banks — has initiated increased surrender and 1035 exchange activity in the BOLI market.1 In a volatile interest rate environment, it is important to focus on long-term results over short-term trends — which includes choosing a provider with a long-term commitment to the market. Within the COLI market, economic uncertainty impacted new sales, with results slightly muted through the first half of 2024. Strong private placement sales, especially in insurance Company-Owned Life Insurance (ICOLI), continue to drive results with quoting opportunities remaining robust for financial advisors to explore.2

In summary, as 2025 unfolds, businesses and their advisors must remain vigilant in their approach to managing institutional portfolios, with a focus on quality, stability, and flexibility in response to a changing economic and regulatory environment. Understanding the intricacies of BOLI, COLI, stable value solutions, and pension liability management will be key to advising clients effectively in this dynamic period.

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 1* 2023 Year-End BOLI Survey Results: Stage 1 Sales Summary, IBIS Associates, February 2024, Page 10

2* 2024 Mid-Year BOLI Survey Results: 1Q & 2Q 2024 Sales Summary, IBIS Associates, February 2024, Page 10.

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The information provided is not written or intended as specific tax or legal advice. Vault Financial, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Vault Financial.

Provided by Jeffrey Albin, a financial representative with Vault Financial, courtesy of Massachusetts Mutual Life Insurance Company (MassMutual).

©2024 Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001     MM202602-311556

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