U.S. Life Insurance Industry Navigates Low Interest Rate Challenges with Innovation

The U.S. life insurance sector is undergoing significant adjustments amid a persistently low interest rate environment, following the Federal Reserve’s third rate cut in 2025 and indications of further reductions in 2026. Life insurers like AIA Group, Manulife Financial Corp., Lincoln National Corp., Jackson Financial, and F&G Annuities & Life are adapting through product redesign, enhanced automation, and technology integration to drive premium growth and operational efficiency. The low interest rates challenge insurers’ investment returns since insurers rely heavily on investing premiums to meet policyholder obligations. To counterbalance this, firms are increasingly allocating capital towards alternative investments such as private equity and real estate. Market expectations forecast a 2%-6% growth in life insurance sales for 2025, particularly in indexed and universal life policies, fueled by a low unemployment rate and improved equity markets. Industry players are innovating with bundled products that combine retirement income guarantees, life, and healthcare coverage to meet shifting consumer preferences for living benefits over traditional death benefits. Technological adoption, including AI-driven underwriting, real-time data analytics, and blockchain, is accelerating digital sales platforms and customized policy designs, enhancing risk assessment, and reducing operational costs. The life insurance industry, while underperforming the broader finance sector and S&P 500 in 2025, maintains solid fundamentals with a current price-to-book ratio near historic median levels, indicating valuation stability. Notable companies like Jackson Financial and F&G Annuities & Life are positioned for growth, leveraging product innovation, demographic trends, and capital-light business models to enhance shareholder returns and operating margins. Jackson Financial emphasizes growth from Registered Index-Linked Annuities (RILA), expecting robust industry sales through 2025. F&G capitalizes on shifting consumer demand from certificates of deposit to fixed annuities, along with strategic diversification into reinsurance and owned distribution channels. AIA, Manulife, and Lincoln National also report positive earnings growth forecasts, supported by technology investments, product enhancements, and expanded retirement services. Overall, the life insurance industry is focused on balancing prudent pricing strategies, regulatory compliance, and technological transformation to sustain growth amid macroeconomic challenges and evolving customer needs.