North American Life Insurance Sector Outlook for 2026: Stability Amid Challenges

North American life insurance companies are approaching 2026 with robust balance sheets and earnings capabilities, maintaining strong credit standings, according to a recent analysis by S&P Global Ratings. Despite a decelerating economic environment, the industry's core strengths—strong capital positions, consistent profitability, and persistent demand for retirement products—are expected to ensure stability.

Strong Credit Ratings Amid Economic Shifts

Most life insurers in North America are highly rated, with approximately 95% holding ratings of ‘A-’ or higher, supported by stable outlooks in 87% of cases. While there has been a slight increase in negative outlooks compared to 2024, most rating changes in 2025 were due to company-specific factors rather than broader economic issues.

Economic Forecasts Favor Insurers

Economically, the forecast is favorable for insurers. S&P anticipates U.S. real GDP growth averaging around 2% for 2025 and 2026. Interest rates are expected to remain stable, with projections indicating the 10-year U.S. Treasury yield will taper off towards 3.7% by 2027 and 2028. This stable interest rate environment benefits insurers by minimizing reinvestment risks while supporting product pricing, regulatory compliance requirements, and risk management strategies.

Capital Buffers and Growth Areas

Insurers typically operate with significant capital buffers, defending against potential economic or market fluctuations. Post-pandemic, profitability has increased due to higher sales volumes and improved portfolio yields, though some earnings volatility persists. Annuities continue to be a key growth area, with steady increases in sales since 2020, particularly for fixed-rate and fixed-index products.

Investment Strategies and Regulatory Scrutiny

Investment strategies within the life insurance sector are under scrutiny from both industry advisors and regulators. Insurers are shifting towards private credit and less liquid assets to achieve higher yields and diversify portfolios. Although these investments remain largely investment-grade, S&P Global Ratings notes heightened scrutiny due to their complexity, credit, and liquidity risks, which could impact industry confidence.

Future Challenges and Positive Outlook

Looking forward, the sector faces uncertainties such as potential regulatory shifts, the merging of insurance and asset management industries, the early use of AI-driven technologies, and geopolitical tensions. Despite these challenges, S&P maintains a positive outlook, indicating that North American life insurers are well-prepared to manage these dynamics and sustain robust credit quality into the future.