Beyond public fixed income, we believe insurers should continue building out or refining their private market portfolios as well.
As regulatory frameworks evolve, insurers are refining asset-liability management and governance to balance capital efficiency, yield, and portfolio resilience.
From a regulatory perspective, there are a number of items that warrant continued close monitoring by European and UK insurers going into 2026.
We believe 2026 will present insurers with another challenging investment backdrop. While the global economy held up reasonably well in 2025, there are a number of risks to consider moving forward. For example, will the Federal Reserve cut rates too quickly and drive inflation higher? Or will it cut too slowly and be forced to play catch-up in a deteriorating economy? Will tariffs bring about a new round of inflationary pressure? Will geopolitical conflicts bring risk assets under pressure?
While risk assets continued to perform well as we approached the end of 2025, we do not necessarily see recession as a significant near-term risk. Rather, we are seeing mixed signals which, along with high valuations, warrant caution heading into 2026.
We’ve clearly seen a meaningful shift lower in fixed income yields in 2025 with the 10-year US Treasury yield falling about 80 basis points through mid-October to below 4%. While major central banks have begun reducing policy rates, investors continue to reassess how far policy rates can fall and how quickly that destination can be reached. Notably, the US Treasury market is pricing in nearly constant long-term yields over the next two to three years, which are more meaningful to most insurers.
Meanwhile, spreads across many fixed income assets returned roughly to where they started the year after widening significantly in the spring, leaving all-in yields for US investment grade exposure in the mid-4% context, UK yields in the low-5% context, and European yields in the 3% context as of mid-October. While fundamentals are strong, we encourage caution on spread duration as spread risks currently appear to be asymmetrically skewed to the upside.
Beyond public fixed income, we believe insurers should continue building out or refining their private market portfolios as well. Private credit remains an overweight position in Invesco strategies relative to other assets given attractive all-in yields, seniority in the capital structure, and reasonable spreads over liquid credit. Recently there has been much discussion about credit events in private markets and whether they are signs of broader stress to come or idiosyncratic events; in our view, they are more likely to be idiosyncratic with current spreads still providing reasonable compensation for the risk. Similarly, while commercial real estate has been under pressure in recent years, the current environment can offer favourable CRE debt yields – we believe this is an opportunity which could enhance capital-adjusted returns for a wide variety of insurers globally.
Within private equity, we continue to encourage caution for our clients. Substantial dry powder and high valuations make it a difficult environment from a technical standpoint, and with financing levels still higher than the recent past, the return potential from deploying leverage is not as attractive as it was a few years ago.
From a regulatory perspective, there are a number of items warranting continued close monitoring going in to 2026.
European and UK insurance portfolios continue to be shaped by Solvency II and Solvency UK reforms, coupled with the macroeconomic backdrop of historically low spreads in the public markets, 2025’s policy induced volatility, and ongoing concerns around inflation.
The EU’s upcoming Solvency II revisions (2026–2027) aim to significantly lower capital charges for high-quality senior securitisation tranches and enhance treatment of infrastructure and long-term equity exposures. These changes position senior structured credit — such as asset-based finance, commercial mortgage loans, and senior tranches of collateralised loan structures (CLOs) — as attractive options for insurers seeking capital-efficient yield and portfolio diversification.
In the UK, PRA’s proposed updates to the Matching Adjustment (MA) framework are expanding insurers’ access to private markets. The Matching Adjustment Investment Accelerator (MAIA) introduces pre-investment flexibility, enabling faster deployment into eligible illiquid and structured assets. Additionally, 2024 reforms — removing the cap on sub-investment grade (SIG) assets and introducing the highly predictable (HP) asset bucket — have prompted insurers to explore CLO tranches for their blend of enhanced yield and structural resilience. With pension de-risking and bulk annuity volumes reaching record levels of £10 billion annually, the PRA’s MA reforms broaden the range of eligible assets — such as structured credit, broadly syndicated loan and private credit CLOs — and enhance deployment speed into illiquid credit for UK life insurers’ annuity portfolios.
In the US, regulators continue to monitor and consider refinements to the reporting requirements for alternative asset manager-backed insurers. Additionally, insurers in the US continue adapting to recent changes to bond definitions and the associated reporting considerations. One topic getting more attention is the credit ratings process and the prevalence of private ratings in particular; with the NAIC taking a more active role in reviewing and potentially contesting ratings, this is an area that has garnered significant commentary from carriers.
In Asia broadly, introduction of, or updates to, existing, risk-based capital (RBC) regimes – as well as financial reporting standards – have been key considerations for insurers in the region. Private markets exposure has gradually been trending upwards as insurers seek to diversify their portfolios and capture spread; still, according to a recent report, insurers within Asia remain generally under-allocated to private markets compared to their European/UK and US counterparts. Insurers, especially the lifers, remain well-positioned to take advantage of the characteristics of private assets, buoyed by on-going new business inflows as well as in-force blocks. Credit focused strategies (e.g. direct lending, real estate debt as referenced above, and structured credit (especially senior tranches of collateralised loan obligations) tend to be quite appealing with their ability to generate additional sources of risk premium as well as helping diversify existing public fixed income allocation. Of course, this requires a more rigorous approach to due diligence – whether directly at the security level or even assessing asset managers who run such strategies. Under RBC regimes generally, private assets can offer an advantageous risk-reward profile and help make portfolios more efficient – albeit with the potential introduction of other types of risk which insurers need to understand and manage appropriately. We feel a disciplined and nuanced approach to private markets investing would continue to be the focus for insurers in the region.
Ahead of and alongside these reforms, insurers continue to focus on increasing allocations to credit‑focused strategies that complement public fixed income, notably infrastructure debt, real estate debt, and direct lending. These assets capture yield uplift and improve portfolio diversification with a key focus on portfolio resilience. As regulatory frameworks evolve, insurers are refining asset-liability management and governance to balance capital efficiency, yield, and portfolio resilience.
In summary, we expect 2026 to be another challenging year for insurance investors. Investment opportunities certainly still exist, but with full valuations and the mixed signals from the real economy, a defensive posture remains our recommendation.
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