North America Insurance Midyear Outlook: Adapting to Disruption

June 13, 2025

6 min read

Geoff Cornell, CFA| Chief Investment Officer—Insurance

Gary Zhu, CFA| Deputy Chief Investment Officer—Insurance

Deanna Leighton, CFA| Head of Allocation & Strategy—Insurance

After an eventful start to 2025, we revisit our themes for the year and where we stand today.

Whether it was a trade war erupting, an equity market round trip or whipsawing interest rates, there’s been plenty for insurance investors to react to so far in 2025. Let’s recap the macro and market picture, check in on the industry, and see how our themes have developed over the first half of the year.

Tariff Tempest Causes Macro and Market Upheaval

It wasn’t the ebb and flow of hard data on the state of the economy or fundamentals that upended investment plans—it was a major policy shock. The Trump administration’s April announcement of sweeping tariffs caused a major reassessment of the path forward.

Markets reeled as concern about a recession intensified, with both consumers and businesses squeezed by higher costs and falling demand. Credit spreads on investment-grade and high-yield corporate bonds climbed as high as 119 and 453 basis points, respectively. Securitized markets held up somewhat better, while private markets took a “wait and see” approach.

Fragmented Growth and Situations Within Insurance Industry

For North America’s insurance market, growth is still fragmented. Life insurance saw its very modest growth from last year continue. Annuity sales were over $100 billion in 2025’s first quarter but down by 1% versus the same period in 2024: registered index-linked annuities and traditional variable annuities climbed by 21% and 14%, respectively, but fixed annuities fell back by mid to high single-digit percentages. Pension-risk-transfer activity has been robust so far, based on both the number of projects and insurers bidding.

Life insurers with spread-lending capabilities continued optimizing their funding sources, tapping the Federal Home Loan Bank’s system (insurers’ advances rose to over $165 billion) and funding agreement-backed notes (issuance is up 20% year to date versus the same period in 2024).

In Property and Casualty, underwriting results and premium growth have remained robust, but offset by large losses from those exposed to the California wildfires. Higher catastrophe-related claims have made liquidity a need for some insurers; others have benefited from higher premiums driven by rising property values and higher investment returns. Strategies seem to be shifting from capital gains to a more balanced mix of income (book yield) and total return, while balancing equity gains with fixed-income losses.

Reinsurance volumes continue to pick up in 2025, with Bermuda still the preferred offshore choice. Industry outlooks continue to point to strong growth in global insurance volumes, particularly in Asia-Pacific. Reinsurance sidecar launches and new fundraising are up, as asset managers, insurers and other interested parties seek more ways to tap into the insurance sector’s value.

Checking in on Our 2025 Insurance Themes

There have been “just a few” developments since we laid out our 2025 themes. In the second half, tariffs’ impact will likely flow into hard economic data, with economic growth slowing. We’re paying extra attention to key risk areas in insurance investing: default risk, ratings migration, convexity and liquidity.

Our themes still hold, though the global macro backdrop seems slightly more negative.

Keep Duration Near Target; Be Nimble on Fixed vs. Floating

We expect rates to stay unsettled as the full weight of tariffs comes to bear, with a wide range of possible outcomes. This reaffirms our view of keeping duration closer to home and being thoughtful with yield-curve exposures, minimizing mismatches with liability duration where possible. Insurers should also be mindful about floating versus fixed exposure.

Expectations for Fed rate reductions have been pushed back, though cuts will likely come eventually—and inflation could pick back up when they do. Long-term rates won’t necessarily move in lockstep with falling short-term rates, so the yield curve might steepen, bringing considerations about reinvestment risk into play. Whether insurers focus on yield or spreads, assessing risk compensation will be critical.

Emphasize Quality and Diversification—and Manage Tariff Impacts

Trade tensions are a new factor and have likely boosted the probability of a US recession. That could eventually weigh on credit fundamentals and trigger ratings agency downgrades, crimping regulatory capital budgets. To gauge the potential tariff impact, Insurers may seek to assess total portfolio exposure to select geographies, sectors and issuers under different scenarios.

A greater probability of slowing economic growth calls for balancing the need to diversify with avoiding credit downgrades; the emphasis should be on selectivity and disciplined credit assessments. Fundamental tools can help identify potential weak spots, and watch-list screens bear close monitoring. Credit spreads could still widen, and insurance investors should prepare for liquidity raises and inflows.

Express Relative-Value Views through Marginal Allocation Changes and Liquidity Raises

A robust relative-value process is vital in enabling insurers to build more diversified portfolios that tap into wide-ranging asset classes including securitized assets, emerging-market debt and private assets while zeroing in on pockets of opportunity.

For insurers that are more loss-constrained, we still see ways to move tactically closer to their strategic asset-allocation plans. Securitized assets tend to be more resilient than corporate credit in sudden market shifts. In April, for example, they generally held up in the market sell-off, outperforming and leading spreads to tighten relative to comparable corporate bonds. But spreads on non-agency residential mortgage-backed securities moved in tandem with corporate credit, so the relative spread advantage versus agency mortgage-backed securities finally grew (Display 1).

Residential Credit Sectors Offer Spread over US Corporates

Spreads by Sector Relationship (Basis Points)

Yield spreads compared across a variety of fixed income segments

Current analysis does not guarantee future results.
IG: investment grade; MBS: mortgage-backed security; NA: non-agency; NOO: nonowner-occupied; RMBS: residential mortgage-backed security
Plus signs indicate comparison to the aggregate spread of the investments listed.
As of March 31, 2025
Source: Bloomberg and AllianceBernstein (AB)

Securities with stronger structural protection could present opportunities—we find them more attractive than certain subgroups of whole loans where negative convexity is a concern. Despite a weaker fundamental outlook, we still think AAA and AA collateralized loan obligations (CLOs) are loss-remote and present attractive potential at current valuations. A and BBB CLOs could become attractive if the credit curve continues to steepen, but manager selection is key. High-yield corporate spreads rose in April but have quickly fallen back—they’re now well below historical averages. Given higher capital charges for high-yield credit, we call for caution in the asset class (Display 2), increasing exposure in moments of volatility, but keeping allocations at the lower end of targets when spreads tighten.

Be Cautious Within High-Yield Corporate Allocations

Spread relationships between credit ratings and adjusted for capital requirements

Past performance and current analysis do not guarantee future results.
BMA: Bermuda Monetary Authority; NAIC: National Association of Insurance Commissioners
Bloomberg US Corporate Investment Grade Index and Bloomberg US High Yield 2% Issuer Cap Index
As of March 31, 2025
Source: Bermuda Monetary Authority, Bloomberg, National Association of Insurance Commissioners and AB

Private Allocations Still Important for Many Insurers

Private-market exposures offer insurance investors enhanced net investment income and diversification, making them valuable building blocks (Display 3). New sectors emerging and more clarity on the path of interest rates could support capital formation and transaction activity. Bank disintermediation, particularly in consumer lending, should spark new opportunities to diversify within private credit.

Investors should focus on illiquidity premiums, because valuations in public assets may be volatile and private markets slower to react. Liquidity is also a big consideration in a changeable environment where fundamentals could soften. It’s important to keep the private pipeline open, but also to stay disciplined and dial back allocations to certain subsectors given a greater liquidity need.

Private Assets Remain a Key Building Block for Insurers

Hypothetical Balance Sheet Mixes

Current analysis does not guarantee future results.
P&C: property and casualty
As of March 31, 2025
Source: AB

Stay Focused on Portfolio Liquidity and Cash Management

With interest rates still volatile, it’s vital to focus on potential portfolio liquidity needs. For insurers that have established enough liquidity, high-quality, short-term asset-backed securities (ABS) may offer an avenue to enhance income on liquidity books. ABS should be considered for just part of the fully liquid allocation, though, complementing traditional money-market investments such as time deposits, commercial paper and short-term investment funds.

It's important to unlock the liquidity of private assets. We think insurers should look for creative solutions such as the Federal Home Loan Bank, Federal Agricultural Mortgage Corporation, funding agreement-backed notes and funding agreement-backed commercial paper, lining up multiple liquidity sources. Keeping a short list of sale candidates can help insurers be ready to move when more liquidity is needed. Candidates should be chosen based on their tradability, balance-sheet impact and—where possible—contribution to reducing overall risk or bolstering diversification. When assessing liquidity, insurers should keep tabs on the percentage of their overall portfolios in securities that can enable quick responses to emerging needs.

The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

About the Authors

Geoff Cornell, CFA

Geoff Cornell is a Senior Vice President, Chief Investment Officer (CIO) of Insurance and a member of AB’s Operating Committee. He oversees AB’s Insurance Investment Management team, as well as insurance sales, solutions, relationship management and client-service efforts, and shares accountability for insurance marketing, accounting and operations with our centralized Marketing and Operations teams. Cornell partners with broader investment teams and the firm’s Business Development and Product Strategy & Development teams to deliver new insurance solutions and pursue inorganic opportunities. He provides investment oversight for the general account portfolio of AB's biggest insurance client, Equitable. Cornell joined AB in 2024 as the firm’s first CIO of Insurance. Prior to joining AB, he spent 30 years at AIG, where he held roles focused across asset classes and insurance portfolio management, most recently as the CIO of AIG’s life and retirement business (now known as Corebridge Financial) and the deputy CIO of AIG. Cornell holds a BS in business administration from Bryant University and an MBA from Fordham University. He is a CFA charterholder. Location: New York

Gary Zhu, CFA

Gary Zhu is a Senior Vice President and Deputy Chief Investment Officer of Insurance, where he is responsible for portfolio performance, strategic positioning and customized investment solutions for AB’s Insurance platform. Zhu joined AB in 2020 as the global head of Multi-Sector Insurance on the Fixed Income team, primarily focusing on developing and implementing multi-sector income portfolio strategies. In 2021, he was named director of Insurance Portfolio Management, where he led AB Fixed Income’s insurance business. Under Zhu’s leadership, the Multi-Sector Insurance team was named Investment Team of the Year in 2022 and 2023 by Insurance Asset Risk. He is also a portfolio manager on the US Investment Grade Credit and Sustainable Thematic Credit teams. Prior to AB, Zhu was a senior publishing research analyst and the head of cross-sector research at Wells Fargo Securities. He ranked first for cross-asset strategy in the 2019 Institutional Investor survey and earned the title of Best Cross-Asset Analyst in Global Fixed Income Strategy. Before joining Wells Fargo, Zhu was a senior securitized assets trader and portfolio manager at Genworth, where he managed ~$10 billion of fixed-income investments. Prior to his portfolio-management role, he helped manage Genworth’s $70 billion general account, with a focus on US and European banking exposures during the 2008 financial crisis, and held various roles across the company. Zhu serves on the board of VCU Investment Management Company and is a member of the Investments Committee. He is a senior advisor to the Structured Finance Association’s flagship Structured Finance Journal, a double-blind, peer-reviewed publication dedicated to advancing research within the structured fixed-income markets. Zhu holds a BS (summa cum laude) in finance and economics from Virginia Commonwealth University and an executive MBA (with Dean’s Honors) from Columbia Business School. He is a CFA charterholder and holds the Fellow, Life Management Institute designation.

Deanna Leighton, CFA

Deanna Leighton is a Senior Vice President and Head of Allocation & Strategy for AB’s Insurance team. She is responsible for formulating insurance portfolio allocation strategies, overseeing daily portfolio-management activities and leading insurance-specific cross-sector, relative-value discussions. Leighton interfaces with AB Insurance’s strategic clients in building tailored liability-driven and asset-focused solutions. She is a frequent speaker at industry conferences and moderated the inaugural Private Credit panel at ABS East in 2023. Prior to joining AB in 2022, Leighton was a fixed-income portfolio manager at AIG Asset Management, where she oversaw around US$5 billion of high-yield bond investments and helped build AIG’s third-party asset-management business. Before this role, she was an associate portfolio manager for AIG Asset Management’s high-yield bond portfolio. Leighton holds a BA with a concentration in economics from the University of Michigan and is a CFA charterholder. Location: New York