Fitch Forecasts Stable Investment Mix for Life Insurers in 2026 Despite Rising Risk Appetite

Fitch Ratings has projected that the investment portfolio mix of life insurance companies will remain largely stable in 2026, supported by strong credit quality and continued reliance on core fixed-income assets. The rating agency said these traditional holdings will continue to anchor insurers’ balance sheets, even as they explore selective opportunities for higher returns.

In its latest insurance sector commentary, Fitch noted that life insurers are likely to gradually increase exposure to private credit and alternative investments in the year ahead. This shift is being driven by an ongoing search for yield in a challenging interest-rate environment, pushing insurers to look beyond conventional asset classes.

Despite this trend, Fitch expects overall investment risk across the life insurance industry to rise only modestly in 2026. The agency stressed that higher allocations to private credit and Level III assets are not expected to trigger widespread rating pressure, suggesting that insurers are managing these risks cautiously.

Fixed-income assets are forecast to continue accounting for about two-thirds of total invested assets, with corporate bonds taking the largest share at roughly 41 per cent. Fitch said insurers are expected to maintain a balanced mix of public and private corporate bonds, with significant exposure to sectors such as financial services, utilities, and consumer non-cyclicals.

Meanwhile, Fitch anticipates more cautious behaviour in the asset-backed securities market, particularly amid ongoing stress in subprime auto loans and broader consumer headwinds. This environment is likely to result in tighter underwriting standards and potentially lower issuance from subprime auto lenders, as life insurers adopt a more risk-averse stance to protect portfolio stability.

source: punch