US life insurers demonstrate resilient earnings amid shifting interest rate landscape in 2026

Publicly traded US life insurers ended 2025 with generally solid results, but the gains were uneven across the sector as the one-off boost from rising interest rates faded and yields settled, Moody’s said in its quarterly assessment. The credit rating agency found that while operating profitability remained healthy relative to a year earlier, sequential performance softened for a number of firms amid narrower spreads on certain annuity offerings and heavier benefit experience in some lines.

According to Moody’s, aggregate operating income among the firms it rates fell about 14% from the previous quarter but was roughly 7% higher than in Q4 2024. Investment returns and equity market strength continued to underpin earnings even as the incremental advantage from higher rates largely disappeared. The agency highlighted that retirement solutions, asset management and other capital-light businesses provided an important earnings cushion, and that insurers with sizable asset-management arms, Equitable Holdings, Principal Financial Group, Ameriprise and Voya, benefitted from larger assets under management, positive net inflows and elevated performance fees.

Moody’s noted that reinvestment yields still exceed returns on many legacy holdings, supporting margins, but warned that the pace of rate-driven uplift has slowed. The US 10-year Treasury finished 2025 in the mid-4% range and Moody’s expects it to trade broadly between 4% and 5% through 2026 as the curve normalises and central banks move toward gradual easing. That interest-rate backdrop sustains spread-based product economics and investment income, yet it also raises disintermediation risks for interest-sensitive liabilities, a vulnerability insurers are addressing by diversifying portfolios, managing liabilities and shifting toward less rate-sensitive, capital-efficient products such as RILAs and fixed indexed annuities.

Sales patterns were mixed. Annuity growth concentrated in indexed and market-linked products offering downside protection, while individual life sales were generally softer year on year and sequentially. Company-level outcomes varied: Globe Life expanded premiums aided by agent growth, Primerica faced affordability headwinds, and Lincoln National reported improved mortality and alternative investment returns despite weaker volumes.

Alternative assets delivered an uneven contribution to results. Moody’s cited private credit as a bright spot, whereas commercial real estate, especially office exposure, remained a drag in some portfolios. Investment income was broadly stable quarter on quarter and modestly ahead of the prior-year period. Net income across Moody’s-rated insurers was reported at $8.3 billion in Q4, up from the previous quarter but below the level of Q4 2024, with higher yields and equity gains offsetting mixed underwriting and benefit experience.

Capital management remained a centrepiece of strategy. Insurers continued to pare interest-sensitive blocks through reinsurance and divestitures, and many pursued balance-sheet optimisation while maintaining steady dividends and buybacks. Pension risk transfer (PRT) activity was robust, with Principal Financial reporting heavy deal flow and MetLife executing large transfers in the US and UK; Moody’s expects institutional demand for de‑risking to continue into 2026.

Moody’s also drew attention to the growing use of offshore reinsurance as a tool to improve capital efficiency and flexibility. Industry developments in 2025 included flow quota-share arrangements for fixed indexed annuities and the creation of Bermuda-based vehicles intended to reinsure Asian liabilities. Market commentary cited by Moody’s indicates the scale of transfers to offshore reinsurers has become substantial and that the trend is set to persist.

Foreign-exchange movements added another layer of quarterly volatility for firms with material international operations. The dollar’s weakening through 2025 before stabilising, and notable moves in the yen, affected results at insurers such as MetLife, Aflac and Prudential, although Moody’s said hedging programmes and diversified footprints help contain the impact.

Technology is being applied more for efficiency than headline growth: several insurers accelerated artificial-intelligence use to streamline underwriting, claims handling and customer-service workflows rather than relying on AI as a primary earnings driver. Exposure to technology-centric investments in insurer portfolios remains limited and diversified, the agency noted.

Taken together, Moody’s judged that the sector’s earnings outlook for 2026 is broadly steady, with profitability increasingly dependent on product mix, disciplined capital deployment and cost control. That assessment aligns with the stable sector outlook Moody’s issued earlier, which balanced steady economic growth and sustained elevated rates against asset risks such as commercial real-estate weakness.

The picture for the broader US insurance industry offers a contrast. AM Best reported a materially different dynamic in property and casualty lines in early 2025, with catastrophe losses, most notably California wildfires, driving a Q1 underwriting loss and weakening industry profitability. That divergence underscores the unevenness of risk and performance across insurance segments even as life insurers navigate the transition to a more normalised interest-rate environment.

In summary, life insurers enter 2026 with resilient, if varied, earnings profiles: investment markets and capital-light businesses continue to support results, but companies will rely increasingly on product repositioning, reinsurance and disciplined balance-sheet actions to sustain profitability as the rate tailwind recedes.