At its latest meeting, the Federal Reserve raised the benchmark interest rate by 25 basis points under Chair Kevin Warsh, lifting the federal funds rate target range to 3.75%-4%. The unanimous decision marked the Fed’s first rate increase since 2023 and a notable policy reversal after three consecutive cuts that had lowered the range to 3.5%–3.75% by December 2025.

Insurers appear broadly well-positioned to benefit from the shift. Reinsurance Group of America Incorporated (RGA Quick QuoteRGA - Free Report) and Lincoln National Corporation (LNC Quick QuoteLNC - Free Report) could gain from their significant exposure to spread-based annuity products and long-duration bond portfolios. Meanwhile, the large investment portfolio of The Travelers Companies (TRV Quick QuoteTRV - Free Report) could provide a more modest boost to investment income.

The rationale for the increase differed somewhat from the Fed’s usual approach. Policymakers typically look through inflation caused by temporary supply disruptions. This time, however, Fed officials weighed the risk that inflation could stay high for longer — driven by rising fuel prices from the Iran war and ongoing effects of tariffs — especially since the job market was still strong. The Fed also lowered its unemployment-rate projection to 4.1%, and there might be another rate increase before the year-end.

President Trump strongly criticized the decision, arguing that U.S. interest rates should be 1% or lower because of the country’s strong credit standing and accelerating investment activity. All the benchmark indexes — S&P 500, Dow Jones Industrial Average and Nasdaq — declined in yesterday’s trading session.

How Are Insurers Positioned?

Life and annuity insurers are likely to benefit the most. These companies invest premiums received well before claims or policy benefits become due, primarily in fixed-income securities. Higher rates allow them to reinvest maturing bonds and deploy new premium inflows at more attractive yields, supporting net investment income. They may also offer more competitive guaranteed returns on fixed annuities while protecting their investment spreads.

The impact on property and casualty insurers is more mixed. Their shorter-duration portfolios allow higher yields to flow into earnings more quickly, although the benefit is generally smaller relative to premium volume. At the same time, energy-related inflation and tariffs could raise automobile repair, construction and medical costs, increasing claims expenses. The ultimate effect will depend on whether insurers can raise policy prices quickly enough to offset rising loss costs.

Overall, higher rates are favorable for the insurance industry, with life and annuity insurers positioned to benefit most directly. P&C insurers should also receive an investment-income lift, although inflation-related claims pressure could limit the upside.

Stocks to Buy

With the help of our Zacks Stock Screener, we have identified the best bets. The shortlisted stocks carry a Zacks Rank #2 (Buy) each. The Zacks Consensus Estimate for their 2026 and 2027 earnings has witnessed northbound revision in the past 60 days. These stocks have gained more than 10% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Timberlake, MO, Reinsurance Group of America is a leading global provider of traditional life and health reinsurance and financial solutions with operations in the United States, Latin America, Canada, Europe, the Middle East, Africa, Asia and Australia.

Reinsurance Group’s net investment income has expanded over time, supported by a larger invested asset base and higher reinvestment rates. In the second quarter of 2026, the core portfolio yield, excluding variable investment income, was 4.96%, while the new money rate reached 6.02%, leaving new investments above the portfolio yield. Variable investment income generated a 15% annualized return in the quarter and 11% year to date, above the 7% planned return for 2026.

The Zacks Consensus Estimate for 2026 and 2027 earnings has moved 10.5% and 2% north, respectively, in the past 60 days. It is trading at a trailing 12-month price-to-book value of 1.18X and has a Value Score of A. A beta of 0.47 implies the stock is less volatile. Shares have gained 17% in the past three months.

Headquartered in Radnor, PA, Lincoln National is a diversified life insurance and investment management company.

Lincoln National is successfully repositioning its annuity business toward more stable, capital-efficient earnings by reducing reliance on fee-based variable annuities and increasing exposure to spread-based products, registered index-linked annuities and fixed annuities. This transition lowers earnings volatility by reducing sensitivity to equity markets and policyholder behavior. The transition is gaining traction.

The Zacks Consensus Estimate for 2026 and 2027 earnings has moved 4.2% and 4.3% north, respectively, in the past 60 days. It is trading at a trailing 12-month price-to-book value of 0.78X. Shares have gained 14.2% in the past three months.

Based in New York, NY, Travelers Companies remains a leading writer of automobile and homeowners insurance and a major U.S. commercial property and casualty carrier.

Travelers’ growing fixed income portfolio provides an increasingly predictable earnings contribution. Improving net investment income reflects higher portfolio yields, growth in invested assets and better non-fixed income returns. Management continues to expect fixed income net investment income of about $840 million after tax in the third quarter and roughly $870 million in the fourth quarter. It also expects fixed income earnings to grow beyond 2026 as the portfolio expands and reinvestment yields remain above the embedded rate.

The Zacks Consensus Estimate for 2026 and 2027 earnings has moved 13.7% and 4% north, respectively, in the past 60 days. It is trading at a trailing 12-month price-to-book value of 2.39X and has a Value Score of B. It has a beta of 0.44. Shares have gained 23.1% in the past three months.