As insurers enter 2026, the investment landscape remains challenging. Sovereign yield curves have steepened, credit spreads continue to trade near historical tights, and inflation uncertainty persists. At the same time, equity valuations remain elevated, while geopolitical and macro risks add further uncertainty.
For insurance investors, these conditions create a difficult balancing act: deploying premium income in a way that generates sustainable returns and preserves capital strength while remaining consistent with regulatory, liquidity and accounting constraints. Traditional asset classes offer limited margin for error, increasing the cost of sub‑optimal allocation decisions.
Against this backdrop, value is more likely to emerge in targeted segments where structural, regulatory and technical factors continue to work in investors' favour. We believe three asset classes remain particularly attractive for insurers in 2026.
- STS ABS: attractive relative spreads and capital efficiency
- Flexible total return credit — a dynamic response to tight spreads
- Defensive European direct lending: non‑sponsored and senior opportunities
STS ABS: Simple, Transparent and Standardised (STS) asset‑backed securities (ABS) have continued to appeal to UK and European insurers, supported by attractive relative spreads and favourable regulatory treatment.
The unwinding of quantitative easing programmes has left ABS spreads attractive relative to history and compared with similarly rated corporate bonds. As the market has become increasingly driven by real‑money investors, spreads on STS transactions often price wider than equivalently rated corporates despite strong historical performance and low loss‑given‑default characteristics.
Companies:M&G
