Bond Yields at 19-Year Highs Hurt Almost Everyone. Life Insurers Are the Quiet Exception.
- The 30-year Treasury yield reached 5.502% on September 25, 2026, its highest since 2004. The 10-year hit 5.225%, the highest since 2007.
- US annuity sales were $104.6 billion in Q1 2026, the 10th straight quarter above $100 billion, after a record $464.1 billion in 2025, per LIMRA.
- Large North American life insurers, including MetLife and Prudential, grew average adjusted earnings 10% quarter over quarter in Q1 2026, per Morningstar DBRS.
- Bonds make up about 73% of Prudential's investment portfolio and 67% of MetLife's. Manulife's US year-to-date APE sales rose 20% in 2026.
- Risk: life insurers held about $807 billion of private and illiquid bonds at the end of 2025, up $122 billion in a year. Defaults in the sector rose to 2.73% in Q1 2026 from 1.84%.
The one industry cheering higher yields
The bond selloff has hurt many parts of the market. Mortgage rates crossed 7%. Bond funds lost value. REITs lost their yield advantage.
Life insurers are the exception. When the 30-year Treasury hit 5.502% on September 25, its highest since 2004, it improved the business outlook for companies such as MetLife, Prudential, Manulife, Sun Life and Great-West Lifeco for years to come.
How a life insurer makes money
A life insurer's business is simple at its core:
- Collect premiums today from people buying life insurance and annuities.
- Invest that money, mostly in bonds, until it's needed.
- Pay claims years or decades later.
The profit comes from the gap between what the investments earn and what the insurer promised to pay. Bonds make up about 73% of Prudential's portfolio and 67% of MetLife's. Stocks are a tiny share.
Most of those bonds are held to maturity. When yields rise, every new premium dollar and every maturing bond gets reinvested at the higher rate. After a decade of 2% and 3% yields, 5%+ is a big upgrade.
Annuities: a record run
Higher rates also make insurers' products easier to sell. An annuity turns a lump sum into guaranteed income, and payouts rise with interest rates.
- US annuity sales hit a record $464.1 billion in 2025, the fourth straight record year, according to LIMRA.
- Q1 2026 sales were $104.6 billion, the 10th straight quarter above $100 billion.
- LIMRA expects 2026 to stay above $450 billion.
In Canada, Manulife reported US year-to-date APE sales up 20% in 2026. APE, or annual premium equivalent, is a standard measure of new insurance sales.
The earnings picture
Morningstar DBRS found that large North American life insurers grew average adjusted earnings 10% from the prior quarter in Q1 2026. About 95% of the sector is rated A- or better.
One quirk: reported net income lagged adjusted earnings, because rising yields cut the market value of bonds insurers already hold. That's an accounting effect. If the bonds are held to maturity, the insurer still collects full value.
The risk: private credit
To earn more, life insurers have moved into private credit: loans to companies that aren't traded on public markets. It pays more but is harder to value and sell.
- Life insurers held about $807 billion in private and illiquid bonds at the end of 2025, up $122 billion in one year.
- Defaults in the sector rose to 2.73% in Q1 2026, from 1.84% two quarters earlier.
Higher rates squeeze the companies that borrowed through private credit. If defaults keep rising, insurers with heavy private-credit exposure could take losses. Background: Private Credit and Retail Investor Risk.
How to evaluate an insurance stock
- Investment portfolio mix: how much is in private credit, commercial real estate or below-investment-grade debt?
- Adjusted vs reported earnings: a big gap may be a rate-driven accounting effect, or a sign of real losses. Read the explanation.
- Capital ratio: US insurers report risk-based capital; Canadian insurers report LICAT ratios. Higher is safer.
- Dividend history and payout ratio: Prudential yields about 4.65% and MetLife about 2.37%, per recent data.
- Geographic mix: Manulife and Sun Life earn a large share of profit in Asia, which adds growth and currency exposure.
Canadian investors already own Manulife, Sun Life and Great-West Lifeco through most TSX index funds; financials are the TSX's largest sector. See Canadian Banks and TSX Concentration.
The honest uncertainty
Higher yields help life insurers slowly, over years, as old bonds roll into new ones. A credit shock could hurt them quickly. If defaults on private loans jump, the benefit of higher yields could be overwhelmed. For now, insurers are among the few clear beneficiaries of the bond market's turmoil, but check what they own before assuming they're safe.
Frequently asked questions
Why do life insurance stocks benefit from higher interest rates?
Life insurers collect premiums today and pay claims years or decades later. In between, they invest mostly in bonds, often held to maturity. When yields rise, new premiums and maturing bonds are reinvested at higher rates, lifting investment income for years. Higher rates also make annuities more attractive, boosting sales.
Do higher rates ever hurt insurers?
Yes. The market value of bonds they already own falls, which can reduce reported net income and book value, though insurers holding to maturity usually recover the full value. Rapid rate increases can also prompt customers to cash out older, lower-rate policies for better ones elsewhere.
Is it a good time to buy an annuity?
Annuity payouts are based partly on interest rates, so higher yields mean higher guaranteed income for the same deposit. For retirees who want predictable income, rates near 19-year highs are more favourable than at any point in two decades. Compare fees, surrender charges and the insurer's financial-strength rating before buying.
What are the biggest life insurers in Canada?
Manulife, Sun Life and Great-West Lifeco are Canada's largest life insurers, and all three are major TSX-listed companies. Each has large US and Asian operations.
Primary sources
Data & disclaimer: This article is for educational purposes only and is not financial or investment advice. Figures reflect data available as of Sep 26, 2026, and conditions change — always confirm current pricing, rates and rules with the provider before you act. Written by Elizabeta Dimoska. See our editorial standards and disclosure.
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