Joy Agwunobi
Fitch Ratings has projected that life insurers’ investment portfolios will remain broadly stable in 2026, with core fixed-income assets and solid credit quality continuing to dominate balance sheets, even as insurers cautiously expand exposure to private credit and alternative investments in search of higher yields.
In its latest commentary on the insurance sector, the rating agency said that while insurers are expected to modestly increase risk-taking through selective asset reallocation, the overall portfolio mix is unlikely to shift materially in a way that threatens credit ratings across the industry.
Fitch noted that the persistent low-yield environment and competitive return pressures are driving insurers to deepen their exposure to private credit across multiple asset classes. These investments are increasingly being sourced through the origination platforms of affiliated alternative investment managers, allowing insurers to capture incremental yield while retaining greater control over asset structures.
According to the agency, focus areas within private credit are expected to include direct lending, collateralised loan obligations (CLOs), private asset-backed securities (ABS) and private-label residential mortgage-backed securities (RMBS). These assets offer opportunities for spread enhancement, while still allowing insurers to manage duration, liquidity and regulatory considerations.
Despite this shift, Fitch emphasised that fixed-income investments will remain the backbone of life insurers’ portfolios. At the end of 2024, fixed-income assets accounted for approximately 67 percent of total invested assets, with corporate bonds representing the largest share at 41 percent. The agency expects this structure to remain largely intact in 2026.
Within corporate bond portfolios, Fitch anticipates a broadly stable mix of public and private securities, with sector exposure continuing to be concentrated in financials, utilities and consumer non-cyclical industries. However, the agency expects some opportunistic growth in energy exposure as insurers selectively reposition their portfolios.
Fitch also expects insurers to continue favouring private placements over public corporate bonds, citing stronger structural protections and better covenant packages. At the same time, holdings of Rule 144A securities are likely to be maintained to preserve portfolio liquidity and flexibility.
While investment risk across the life insurance industry is expected to rise modestly in 2026, Fitch stressed that increased allocations to private credit and Level III assets are not expected to result in widespread rating pressure. The agency said insurers’ disciplined risk management practices and diversified portfolios should help absorb incremental risk.
In the asset-backed securities space, however, Fitch expects a more cautious investment stance. The agency pointed to ongoing stress in subprime auto lending and broader consumer headwinds as key risk factors shaping ABS allocations in the coming year.
Rising delinquencies of 60 days or more, along with elevated vehicle repossessions, are already exceeding levels seen during past economic downturns. According to Fitch, these trends are likely to prompt tighter underwriting standards, wider spreads for weaker collateral and potentially reduced issuance from subprime auto securitisation shelves in 2026.
Overall, Fitch’s outlook suggests that while life insurers are gradually adapting their investment strategies to improve returns, the sector is likely to prioritise balance sheet stability and credit quality over aggressive risk-taking, maintaining a measured approach as market and consumer risks evolve.
