The US life insurance industry is sitting on record capital and the strongest annuity sales in its history, yet AM Best and global regulators are training their sights on private credit concentrations and weakening capital quality that cloud the outlook.
AM Best maintained a Stable outlook for the sector but said growth is expected to moderate. LIMRA data showed total US annuity sales reached a record $461.3 billion in 2025, nearly doubling over five years, with registered index-linked annuity sales surging roughly 20% year over year.
Industry capital and surplus reached $538.8 billion as of the third quarter of 2025, up 4.7% from the prior year-end. AM Best estimates the figure will hit $564.3 billion in 2026.
Beneath the headline strength, however, AM Best flagged declining capital quality driven by soft capital, offshore reinsurance and affiliated reinsurance arrangements. The reinsurance leverage ratio for the sector ended 2024 at 328%, up from nearly 200% a decade earlier, with AM Best's Edward Kohlberg noting that ceded reserves doubled from 2016 to 2024.
Sidecar usage has expanded sharply. AM Best data from 2024 showed the number of companies utilizing sidecars had tripled since 2021, with ceded reserves to these structures increasing threefold over two years.
A March 2025 Federal Reserve staff note described what it called complex and arguably opaque structures created by partnerships between life insurers and asset managers, warning they obscure the true leverage of both parties.
A 2025 Bank for International Settlements paper similarly found that PE-backed insurers have been more likely to rebalance toward higher-risk investments such as structured products and affiliated assets.
The industry's investment portfolio has tilted toward private credit and alternative assets. Research from Conning showed allocations to private placements, mortgage loans, real estate and Schedule BA asset classes rose to 38% of total portfolios in 2024 from 30% in 2018, with private placements alone climbing to 19% from 13%.
Moody's found that private letter-rated, Z-rated and Level 3 holdings totaled $685 billion as of year-end 2024, or 18% of the industry's $3.8 trillion fixed-income portfolio — with about 10% below investment grade, double the share in broader portfolios.
AM Best has described the private credit landscape as largely untested by a large-scale credit or liquidity event.
Problem mortgage loans nearly doubled since 2023, with 90-day delinquencies reaching 4.1% in the third quarter of 2025.
AM Best expects continued premium growth in 2026 but cautioned that declining growth rates could intensify competition. The Peak 65 demographic trend, with an estimated 4.1 million Americans turning 65 annually through 2027, continues to underpin demand — though how long that tailwind offsets mounting structural risks remains an open question.
