US retail annuity sales reached a record $461 billion in 2025. The business models supporting that growth have become materially more complex, according to Morningstar DBRS.
The report focuses on multiyear guaranteed annuities (MYGAs) and fixed indexed annuities (FIAs). Both products carry low risk profiles, Morningstar DBRS said. The investment and capital strategies built around them have grown more dependent on capital efficiency, investment execution, and the regulatory environment.
The FIA segment alone reached $127.9 billion in sales in 2025. That made it the fastest-growing annuity category for the third consecutive year. A March 2026 analysis found that roughly a fifth of investments held by some AAM-affiliated insurers consist of loans made to affiliated funds. Regulators have flagged the opacity of those underlying assets as a growing concern.
AAM-backed annuity platforms, where AAMs refers to alternative asset managers, accounted for more than 40% of FIA sales among the top 20 carriers by the end of 2025.
A report from Athene found that average private credit allocation among its top 10 peers was approximately 26%. Many traditional carriers have responded through strategic partnerships or by expanding in-house alternative investment platforms.
Spread compression has intensified the search for yield. Lower interest rates in 2025 pressured investment yields while liability costs remained sticky. Insurers have responded by increasing allocations to private credit and structured securities.
Outstanding Federal Home Loan Bank (FHLB) advances to US insurance companies reached a record $177.9 billion in 2025, with insurers’ share of total FHLB borrowing rising to 26% from 17% in 2022. Morningstar DBRS said heavier reliance on that funding source could reduce liquidity flexibility under stress.
Those concerns extend beyond the insurer level. A Federal Reserve staff note described life insurer and asset manager partnerships as creating opaque structures that obscure the true leverage of both parties. Industry capital and surplus reached $538.8 billion as of Q3 2025. AM Best projects the figure will reach $564.3 billion in 2026.
The AAM-integrated model performs well under normal conditions. Higher-yielding private and structured assets offer lower liquidity, less transparent valuation, and greater structural complexity. Those factors become more significant when market conditions deteriorate.
Private illiquid bond holdings across the US life insurance industry reached $807 billion at year-end 2025, up $122 billion in a single year, per Moody’s. The top 10 life insurers hold $352 billion, or 44% of the total. Those same firms account for only 24% of total industry fixed income.
The private credit default rate tracked by Proskauer’s index rose to 2.73% in Q1 2026, up from 1.84% two quarters earlier.
The National Association of Insurance Commissioners (NAIC) has focused on balance sheet transparency and capital requirements since 2025. Late-stage proposals on collateralized loan obligations (CLOs) would increase capital charges on tranches rated BBB and below.
The NAIC’s CLO modeling project implementation has been pushed to December 31, 2026. A revised approach introduces tranche thickness as a key capital driver. Under a separate proposal, collateral loans backed by equity interests could face a risk-based capital charge of 30%, up from 6.8%, per Fitch Ratings.
Morningstar DBRS said performance differentiation across the sector is likely to widen under stress. Carriers that have built more complex, private credit-heavy models face the greatest uncertainty if credit conditions turn and capital requirements tighten simultaneously.
