Large North American life insurers posted resilient first-quarter results in 2026 despite elevated market volatility and growing scrutiny of private credit strategies, according to a new commentary from Morningstar DBRS.
Average adjusted earnings among a select group of large non-mutual US and Canadian life insurers rose 10% quarter over quarter, the report found. However, reported net income trailed adjusted earnings, weighed down by unfavourable mark-to-market movements on invested assets and derivative hedges – an effect most pronounced among US annuity writers with significant exposure to interest-sensitive fixed-income portfolios.
Earnings were supported by higher investment yields, improved underwriting results, and continued strength in retirement, wealth, and asset management businesses. Those gains were partially offset by rising operating expenses, including an unusually large US$1.7 billion tax expense reported by Athene Holding Ltd.
Morningstar DBRS noted that Q1 2026 was characterised by heightened market fluctuations, largely driven by the conflict in the Middle East and its effect on investor sentiment. Despite having very little direct insurance or asset management exposure to the region, North American life insurers felt the conflict’s effects through broader global capital markets, with disruptions to oil and gas exports through the Persian Gulf contributing to upward pressure on inflation and interest rates.
North American equity and credit markets largely recovered following an initial decline, supported by strong corporate earnings tied to continued investment in artificial intelligence and a resilient economic backdrop. Morningstar DBRS said it expects life insurers to benefit from those favourable conditions in Q2 2026.
On private credit, the report said scrutiny of private and alternative credit strategies intensified during the quarter, with a key emerging concern being exposure to borrowers in the software sector potentially disrupted by AI-driven competitors. Morningstar DBRS said that while large life insurers may carry some such exposure, their portfolios are typically broad and well diversified, with credit losses remaining manageable. The report found no evidence of significant deterioration in insurers’ investment portfolios to date.
Regarding interest rates, Morningstar DBRS said that while rising bond yields introduce short-term volatility and mark-to-market pressures, they offer longer-term benefits through improved investment margins and enhanced product competitiveness. Capital levels were described as remaining strong across the sector, even among insurers that recorded net losses on a GAAP basis.
