Members of Wellington's Insurance team share their economic expectations, investment ideas, and a regulatory roundup for the year ahead.
In 2025, the insurance industry delivered one of its best underwriting years in recent memory and, after the inflation shock of 2022, entered the new year on firmer footing. That said, the strength of 2025 also argues for some caution in the year ahead. We expect premium growth to moderate and new capital to flow into the market, pressuring profitability. Macro conditions remain broadly supportive of risk assets, yet valuations are stretched and risk premium buffers are thin. Against that backdrop, this year's Outlook offers our view on what's next for the economy and then delves into three topics we think should be top of mind for insurers:
1. A second bite at the apple in rates
We think government bonds remain attractive and insurers can still lock in yield opportunities. From a tactical standpoint, we have a modest overweight view on duration given the absolute level of interest rates and tight credit valuations, but from a strategic asset allocation perspective, we believe we have seen the highwater mark for rates, though we do not expect them to decline dramatically during 2026. In addition, a steeper yield curve should allow for compelling carry and rolldown dynamics.
2. A gradual pivot in credit
We do not expect a rapid turn in the credit cycle, but valuations remain rich in equities and credit, and cracks are appearing in some parts of the private markets. Our general view is that insurers should look to sectors with favorable return potential, such as public and private securitized credit and investment-grade private placements, and begin the gradual pivot to better quality and diversification across strategic asset allocations.
3. A focus on where the regulatory ball is rolling
Regulators are busy and there will likely be real implications for insurance investment strategy. In the US, the use of covariance between equities, spreads, and interest rates is underway. In Europe, portions of the securitized credit markets may no longer be anathema to regulators.
You can contact Wellington here if you would like to discuss these or any other investment topics.
