Fitch Ratings maintains a ‘neutral’ sector outlook for North American life insurers in 2026 despite a more challenging backdrop, citing that strong balance sheets will help mitigate a potential slowdown in economic growth, heightened macroeconomic volatility, and geopolitical uncertainty.
Fitch said, “Key headwinds include heightened macroeconomic and geopolitical uncertainty. Fitch expects investment risk for the industry to increase modestly.
“However, life insurers will continue to emphasise investment-grade bonds. The industry will continue to increase its allocation to less-liquid assets, including private credit, due to the illiquidity and complexity of premiums, driven in part by the growth in alternative investment manager partnerships. Fitch views this trend cautiously and will closely analyse the performance of the less-liquid, less transparent and more esoteric investments in a credit market downturn.
“In 2026, Fitch expects the growth in offshore reinsurance and partnerships with alternative investment managers to persist. These trends, coupled with the continued shift toward less-liquid investments, will lead to a highly dynamic regulatory environment focused on ensuring that capital held is commensurate with risk.”
Fitch noted that life insurers’ expanding relationships with alternative investment managers (Alt IM) are leading to higher investment allocations to private asset classes, which adds incremental risks and sensitivity to market volatility. The industry’s strong capitalisation partially offsets these concerns, as reflected in ‘Strong’ Prism capital model scores, cash flow matching, and asset class diversification.
The regulatory environment in the region has been highly dynamic, led by the National Association of Insurance Commissioners (NAIC) in the US and the Bermuda Monetary Authority (BMA). Both have proposed and adopted initiatives to enhance transparency and resilience, ensuring insurers hold sufficient capital and protect policyholder obligations. These initiatives also aim to address the material growth in offshore reinsurance, which Fitch expects to continue in 2026.
Fitch anticipates stable operating earnings, with net investment income benefiting from spread widening, partially offset by policy rate declines. Commercial real estate (CRE) will remain under pressure, though it is easing. Insurers’ expected credit loss reserves have increased to reflect these challenging dynamics. While CRE losses may rise in 2026, they should remain manageable relative to capital.
Jamie Tucker, Senior Director at AM Best, said, “North America life insurance sector outlook remains ‘neutral’ in 2026 despite a more challenging backdrop. Fitch views life insurers’ strong balance sheets as a partial mitigant against potentially slowing economic growth, heightened macroeconomic volatility and geopolitical uncertainty. Investment risk is expected to continue to increase on the margin and investment losses will increase YoY. The regulatory environment will remain dynamic, reflecting continued portfolio shifts, offshore reinsurance and partnerships with alternative investment managers.”
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