The United States is now confusing world financial markets with a rapidly changing list of increases and decreases in tariffs, or import taxes.
For life and annuity issuers, the only sure thing is that this is a difficult time to make confident statements about what will happen in the next hour, let alone in the next year.
But Ryan Krueger and other life and annuity sector analysts at Keefe, Bruyette & Woods have put the 16 big, publicly traded issuers they follow through a homegrown stress test, and they think those companies look fine.
If the kind of turmoil that has been rolling over world investment markets this past week keeps up, it could cut the big insurers' 2026 operating earnings by an average of about 14%, with an average earnings reduction of 3% to 30%, according to a summary of the analysts' calculations posted behind a paywall.
The KBW analysts included the effects of a 15% drop in stock prices. When the analysts made their calculations, the market was down just 11%.
The analysts also included the effects of a 50% reduction in variable investment income and a 50% reduction in stock buybacks, which can increase earnings-per-share figures by reducing the number of shares outstanding.
What it means: Most life and annuity issuers made it through the 2007-2009 great recession without defaulting on obligations to life insurance and annuity customers.
Most life insurers endured the worst years of the COVID-19 pandemic — the second deadliest disease outbreak to hit the United States since modern life insurance came into existence — without breaking a noticeable sweat.
KBW analysts think the big life and annuity issuers are in good shape now.
Bond issuer defaults: U.S. life and annuity issuers invest mainly in investment-grade corporate bonds, mortgages and mortgage-backed securities, with a smattering of assets such as private equity deals, private credit deals and securities backed by assets such as consumer loans.
One factor the analysts left out of their 2026 stress test is the impact of borrower defaults.
"Historical credit experience has been decent for the industry and generally better than banks, but exposure to losses is unavoidable in a credit cycle (not there yet)," the analysts wrote.
If life and annuity issuers went through a two-year wave of defaults that was comparable to what they saw in the early 2000s or during the 2007-2009 financial crisis, the hit could amount to 7% to 10% of the issuers' statutory capital, the analysts estimated.
"Combined with ratings migration, this could effectively wipe out a year or so of industry free-cash-flow generation over a two-year period," the analysts wrote.
A credit loss of that magnitude might look ugly to investors, but "life insurers can generally absorb this and rebuild capital by suspending share buybacks for a period of time," the analysts said.
The Time Before the Tariffs: The first quarter of the year ended March 31, before the administration of President Donald Trump began unveiling the recent wave of tariff changes.
Normally, the KBW analysts would ask many questions about insurers' results when the insurers hold their public conference calls with securities analysts to discuss their quarterly earnings.
This year, because so much changed since March 31, the first-quarter results "are less meaningful," the analysts wrote.
Meyer Shields and other KBW analysts who follow property and casualty insurers also mused about how what happened before April 3 seems less relevant.
"We expect tariff-related concerns — including potential claim cost inflation, slowing premium growth, and investment allocation and capital redeployment — to dominate 1Q25 conference calls, with less attention expected to be paid to reported results," the P&C analysts wrote.
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