April 8, 2026
By Matthew Vegari, Head of Research
2026 was poised to be another year of strong growth for the US economy. Despite ongoing signs of weakness, not least a labor market producing few, if any, new jobs, the economy was slated to hang on. By the end of last year, the Fed had slashed its policy rate to or near neutral territory; tariff price pressures were rolling over (and with them, inflation); the consumer remained resilient if disgruntled; long rates had fallen; the AI boom was on firm footing.
And yet. As the military campaign against Iran unfolds, high oil prices threaten this late-stage cycle to the greatest degree in years. The specter of higher inflation, propelled by an energy shock, has rattled markets. Portfolios endured a rough Q1, as stocks and fixed income repriced for lower profitability and higher rates. In this market brief, the first of its kind, we leverage Clearwater’s proprietary database and take a detailed look at returns year-to-date to see what’s influencing performance for insurers.
After a strong start to the year through February, insurers have seen their total returns whipsaw, with a rally at the end of Q1 flipping returns positive on the year [0.4%, on average]. While equity markets have grabbed headlines, an additional culprit for insurers has been a dip in fixed income markets. Coupon-paying assets have been repricing (and then repricing, again) for more inflation and higher rates. For insurers who hold to maturity, however, such price action will not be felt too acutely over the longer run.
The Research Desk is now able to decompose returns on an asset-class basis, an exercise which shows an obvious pain point for portfolios: Both stocks and bond portfolios have been beaten up as oil has surged. On balance, insurers’ exposure to equities is modest (an average 14% on Clearwater’s platform), which has allowed for outperformance relative to other asset owners on Clearwater’s platform YTD. Even so, there are few bright spots for 2026, with cash holdings (an average 7% share of portfolios) the prime source of support.
Aggregates and averages are often deceiving. This is especially true when considering returns for insurers, whose strategies vary depending on liabilities and time horizons. While the majority of insurers have seen modestly positive returns this year, the upper crust of life insurers, more reliant on fixed income and less exposed to equities, have seen reasonable outperformance.
We’ve long been optimists about the economy’s outlook at the Research Desk. Last June, despite a barrage of recession calls in the wake of Liberation Day tariffs, we called this “the economy that wants to hang on.” In December, we doubled down on that thesis.
Today is a different story. At present, a pipeline of inflation threatens the economy in a meaningful way. Not through shifting monetary policy or long rates (though they don’t help!) but household consumption, which comprises 2/3 of US GDP. With job growth nonexistent, the primary source of resilient consumer spending for several years has been real wage growth. Though inflation has been high, raises received by workers have, on balance, been higher. This increase in purchasing power has been a boon for the economy.
We’re keeping a very close eye on how long the conflict in the Middle East looks to last. At present market pricing, the energy shock could gradually add ~100bps of inflation. That would stall out real wage growth for the consumer and put the economy on very shaky ground. (We published an op-ed on this last week.)
The longer the conflict lasts, the likelier a recession. This economy has wanted to hang on. It may finally let go.
Additional research by Tyler Busby, Data Scientist
Timely analysis of movements observed in Clearwater’s proprietary database and indices, exploring monetary policy, credit conditions, foreign exchange, equities, alternative assets, and more.
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