October 14, 2026
By Tyler Busby, Data Scientist
2026 opened with solid expectations for both the US economy and investor portfolios: the Fed had cut its policy rate to near neutral, tariff-driven inflation was fading, the consumer remained resilient, and the AI boom was on firm footing. But the macro backdrop got more complicated than expected. By Q3, the conflict in Iran had kept inflation elevated, the Fed had delivered its first rate hike in three years, and the 10-year Treasury yield had climbed to a level not seen since 2002 — all while corporate earnings, the job market, and AI-related spending kept the underlying economy strong.
In this market brief, the Research Desk leverages Clearwater’s proprietary database to take a detailed look at year-to-date total returns and examine the impact these conditions have had on insurers.
With roughly two-thirds of their books in fixed income, insurers spent 2026 closely tracking the bond market’s every move. Rising yields weighed on returns through the summer, limiting performance to a peak of 2.2%. Then the 10-year Treasury yield, which started August at 4.6%, surged to nearly 5.3% in September, sending bond prices lower and wiping out what remained of this year’s gains. That left insurers’ YTD return at 0.1%, the lowest in four years. (For Q2 insurer trends, see our brief.)
A decomposition of returns shows fixed income’s price contribution swung by 6 percentage points year over year, from +2.2% at this stage in 2025 to -3.8% at the same point in 2026. Insurers are especially exposed to bond repricing because their books run long, a function of matching assets to long-dated liabilities. The average US insurer’s fixed income portfolio has 11 years to maturity, and some life insurers, which typically carry the industry’s longest-dated liabilities, run as long as 18 years. On the year, fixed income’s overall contribution (price plus income) to insurer returns is negative, at -1.1%. What positive contribution remains comes from elsewhere: equities added +0.9%, alternatives (primarily private credit) contributed +0.2%, and cash added +0.1%.
Rising yields have hurt insurer portfolios before, most severely in 2022. The Clearwater Duration Activity Index (CDAI), which tracks how much insurers are changing their duration exposure, tells the story. After yields hit record lows in 2020, insurers extended portfolio duration more aggressively than at any point since the CDAI began in 2019, reaching for yield in longer bonds well into 2021. When the Fed hiked seven times in 2022 and the 10-year Treasury rose more than 2 percentage points, that extra duration amplified losses, and the average insurer ended the year with a total return of -10%. Throughout 2022, insurers reduced average portfolio duration from 5.3 to 4.7 years, mostly by rolling maturing bonds and new cash into shorter-duration bonds rather than selling existing holdings. The CDAI bottomed just as the rise in 10-year yields peaked.
The same pattern is emerging now: the 10-year yield is rising quickly, and insurers have cut duration from 4.8 years in May to 4.5 years at the end of September. Cutting has clear appeal. It limits further markdowns, lowers the risk of realizing losses if bonds must be sold to meet liabilities, and positions insurers to reinvest at higher rates. But the right move depends on what yields do next: keep cutting if they’re still climbing, start extending if they’ve peaked. The question now is whether today’s cuts reflect a view on where rates are going, or a reaction to where they’ve been.
Edited by Heather McClellan, Global Head of Revenue Operations
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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