Strong Annuity Sales Reshape Risk Profiles for U.S. Life and Annuity Insurers

By International Desk: Surging demand for annuities has propelled U.S. life and annuity insurers into a new era of growth, but the boom is also fundamentally altering their risk profiles, with asset-related risks claiming a larger share of required capital and prompting closer scrutiny from rating agencies and regulators. Record sales volumes, which topped $464 billion in 2025 according to final LIMRA figures, marked the fourth consecutive year of all-time highs and have continued robustly into 2026, even as interest rates moderate.

This sustained surge, driven by an aging population seeking retirement security, attractive yields in a higher-for-longer rate environment, and innovative products offering downside protection with growth potential, has shifted the composition of insurers’ liabilities and assets alike. Fixed indexed annuities (FIAs), registered index-linked annuities (RILAs), and other accumulation products now dominate sales, bringing in longer-duration liabilities that require careful asset matching and expose carriers to greater investment, credit, and reinvestment risks.

A May 2026 AM Best special report captured the dynamic clearly: strong annuity sales have shifted reserve profiles for many U.S. life/annuity companies, with asset risk forming a greater share of required capital in the agency’s Best’s Capital Adequacy Ratio (BCAR) model. This has contributed to weaker BCAR scores for some carriers, even as overall balance sheet strength assessments remain largely in the very strong or strongest categories. Average BCAR scores at the VaR 99.6% level dipped in recent years before a modest rebound in 2025, underscoring that rapid growth can outpace capital buffers if not managed prudently.

Insurers have responded by seeking higher yields to support competitive crediting rates on annuities, often through allocations to structured securities, private credit, and other alternative investments. These assets can deliver the returns needed to attract policyholders in a competitive marketplace, but they carry higher risk-based capital charges. The result is a more complex risk mix; while traditional mortality and longevity risks from life insurance remain important, asset and market risks tied to annuity blocks are becoming more prominent. This evolution has implications not only for capital requirements but also for liquidity management, especially during periods of market stress or mass surrenders.

Industry experts note that the shift reflects broader macroeconomic and demographic tailwinds. With baby boomers retiring and “money in motion” from maturing contracts, consumers have gravitated toward products that blend principal protection with participation in equity or index gains. RILA sales, in particular, have exploded, setting records and continuing to grow in 2026 as carriers introduce new features and expand distribution. Fixed indexed annuities have nearly doubled in recent years, while even traditional variable annuities have rebounded. LIMRA forecasts 2026 retail annuity sales to remain above $450 billion, supported by demographics and product innovation despite anticipated rate cuts.

Pension risk transfer (PRT) activity has added another layer, with insurers taking on large blocks of defined-benefit liabilities in bulk transactions. These deals further extend duration and amplify the need for sophisticated asset-liability management. While they diversify revenue and leverage scale, they also concentrate longevity and interest-rate risks on insurers’ books.

The growth story has been overwhelmingly positive for earnings. Life/annuity insurers posted strong net operating gains and capital increases in 2025, benefiting from elevated investment income. However, rating agencies like AM Best and S&P Global Ratings emphasize the importance of underwriting discipline, asset quality, and capital planning. Rapid expansion can strain resources if accompanied by aggressive crediting strategies or excessive concentration in illiquid or volatile assets. Regulators continue to monitor private credit exposures and structured product holdings, areas that have drawn global attention.

For carriers, the altered risk landscape presents both opportunities and challenges. On one hand, annuities provide stable, fee-generating assets under management and long-term cash flows that can support reinvestment in technology, distribution, and product development. Private equity-backed and asset-management-affiliated insurers have been particularly aggressive, using sophisticated origination platforms to secure higher-yielding investments that traditional carriers might struggle to access. On the other, smaller or less diversified players may face pressure to maintain competitive offerings without compromising financial strength.

Reinsurance has emerged as a key tool for managing the surge, allowing primary writers to offload portions of new business and optimize capital. Yet this too carries counterparty and basis risks. Meanwhile, competition is intensifying as new entrants and expanded bank and broker-dealer distribution channels push volumes higher, potentially compressing spreads if not offset by investment performance.