Despite an array of macro headwinds, and growing risks, the outlook for North American life insurers remains “neutral,” says Fitch Ratings.
In a new report, the rating agency said that the life sector faces a “more challenging backdrop” in 2026 — including slowing economic growth, intensified volatility and elevated geopolitical uncertainty — but the credit rating outlook is underpinned by the companies’ strong capital and liquidity positions.
“Stability of operating earnings, net investment income and return on equity will be supported by increasing assets under management, improving fixed-income returns, and spread widening that will be partially offset by policy rate declines and equity market volatility,” it said.
Fitch said that it expects credit losses to increase modestly in the year ahead, and noted that it will continue to monitor the sector’s investment quality and underwriting “for signs of late cycle behaviour and outsized risk taking.”
Commercial real estate exposures “will remain under pressure,” it said, particularly for office properties.
“Insurers’ credit loss reserves have increased meaningfully, reflecting the challenging dynamics, which should absorb the expected uptick in realized losses,” it said.
At the same time, the industry’s investment risk is seen as increasing modestly in 2026, amid growing partnerships with alternative investment managers — which has raised insurers’ exposure to private credit and other risky, less-liquid assets.
The ongoing growth of risky, less-liquid investments will “increase regulatory scrutiny to ensure that the capital held is commensurate with risk,” the report said.
“The focus on private credit will increase, particularly among bank and insurance regulators, given the potential spillover risks from the growing interconnectedness among market participants,” it added.
However, the report noted that, if the markets undergo a more severe downturn than expected, “insurers’ strong capitalization will partially insulate balance sheets.”
And, even if the performance of private credit weakens over the next 12 to 24 months, the North American insurers aren’t expected to come under widespread rating pressure, Fitch said — as their exposures are generally limited to strategic partnerships, minority stakes, and reinsurance arrangements.