Despite a more challenging backdrop, Fitch Ratings maintained its “neutral” industry outlook for North American life insurance companies in 2026, arguing that strong balance sheets will help mitigate the impact of a potential slowdown in economic growth, heightened macroeconomic volatility and geopolitical uncertainty.
The agency expects that despite these headwinds and growing concerns about rising private credit risks, life insurers will maintain strong capitalization, prudent asset-liability management and solid liquidity in 2026.
Fitch said: “Key headwinds include heightened macroeconomic and geopolitical uncertainty. Fitch expects investment risks in the sector to increase modestly.
“However, life insurers will continue to emphasize investment-grade bonds. Due to the illiquidity and complexity of premiums, the industry will continue to increase allocations to less liquid assets, including private credit, driven in part by the growth of alternative investment manager partnerships. Fitch views this trend with caution and will closely analyze the performance of less liquid, less transparent and more esoteric investments during a credit market downturn.
“Fitch expects offshore reinsurance and partnerships with alternative investment managers to continue to grow through 2026. These trends, coupled with the continued shift toward less liquid investments, will result in a highly dynamic regulatory environment focused on ensuring capital held is commensurate with risk.”
Fitch noted that life insurers’ expanding relationships with alternative investment managers (Alt IMs) have led to increased investment allocations to private asset classes, which increases incremental risk and sensitivity to market volatility. These concerns are partially offset by the sector’s strong capitalization, reflected in ‘Strong’ Prism Capital Model scores, cash flow matching and asset class diversification.
The region has a highly active regulatory environment, led by the National Association of Insurance Commissioners (NAIC) and the Bermuda Monetary Authority (BMA). Both companies have proposed and implemented initiatives to increase transparency and resiliency, ensuring insurers hold adequate capital and protect policyholder obligations. The initiatives also aim to address material growth in offshore reinsurance, which Fitch expects to continue through 2026.
Fitch expects operating earnings to remain stable and net investment income to benefit from wider spreads, partially offset by lower policy rates. Commercial real estate (CRE) will remain under pressure, but pressure is easing. Insurers’ provisions for expected credit losses have increased to reflect these challenging dynamics. While commercial real estate losses are likely to rise in 2026, they should remain manageable relative to capital.
Jamie Tucker, senior director at AM Best, said: “The outlook for the North American life insurance industry remains ‘neutral’ in 2026, despite a more challenging backdrop. Fitch views life insurers’ strong balance sheets as a partial mitigation against a potential slowdown in economic growth, heightened macroeconomic volatility and heightened geopolitical uncertainty. Investment risk is expected to continue to increase modestly, with investment losses increasing year-over-year. The regulatory environment will remain dynamic, reflecting continued portfolio shifts, offshore reinsurance and engagement with alternative investment managers.”
