3 Insurers to Buy Heading Into 2026 as High Rates Boost Yields

Insurance stocks present a compelling investment opportunity heading into 2026, supported by disciplined underwriting practices, steady premium growth and a favorable interest-rate backdrop. Although the Federal Reserve has begun cutting rates, current levels remain well above the near-zero environment that prevailed for much of the past decade. This creates a significantly more supportive operating landscape for insurers, particularly those with sizable, long-duration investment portfolios that benefit from improved bond yields.

In this context, Mercury General Corporation MCY, Heritage Insurance Holdings HRTG and RenaissanceRe Holdings RNR are well-positioned to benefit from high rates that boost yields in the new year. Higher bond yields act as a meaningful earnings tailwind for insurance companies. Insurers invest collected premiums primarily in high-quality fixed-income securities, including government and corporate bonds, to fund future claim obligations. As yields rise, maturing securities and new premium inflows can be reinvested at higher rates, directly boosting investment income. This enhances net income, operating margins and return on equity without requiring incremental underwriting risk.

Insurers are particularly advantaged in a sustained higher-rate environment because their investment portfolios turn over gradually. Over time, lower-yielding legacy bonds are replaced with higher-yielding instruments, providing a steady lift to earnings. This dynamic is especially favorable for property and casualty insurers and reinsurers and life insurers, where large, long-duration portfolios magnify the impact of rising yields.
Improved investment income also strengthens capital positions, enabling dividends, share repurchases and greater balance-sheet flexibility.

At the same time, insurers continue to benefit from premium growth, which further expands the pool of investable assets. Pricing increases implemented to offset inflation, higher claims severity, and catastrophe risk are now translating into improved underwriting margins. Strong underwriting discipline, attractive product offerings and increased exposure are driving higher premiums, reinforcing earnings momentum. Together, prudent underwriting and a healthier rate environment are creating a foundation for more predictable and sustainable earnings growth through 2026.

3 Insurance Stocks to Add to Your Portfolio

Here, we pick three insurers that are poised to benefit from portfolio returns and premium growth. These stocks sport a Zacks Rank #1 (Strong Buy) and have gained more than 10% this year.  You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for 2026 earnings of each of these insurers has moved north in the past 60 days. 

Mercury General, headquartered in Los Angeles, CA, is an insurance holding company poised to witness top-line growth, backed by sustained premium increases. Premiums have been benefiting from rate increases in its lines of insurance business and a higher number of policies written. 

As of Sept. 30, 2025, MCY had about 81% of its investment in fixed maturity securities, which are mostly long-term bonds and other debt with maturities. The overall credit ratings for the fixed maturity securities portfolio were relatively stable during the nine months ended Sept. 30, 2025. Higher average invested assets and higher yields on investments should continue to support investment results.

Heritage Insurance Holdings is well-positioned to benefit from prudent underwriting execution and rate adequacy initiatives. It is re-entering profitable markets in a measured way while allocating capital with strict discipline to preserve margins. Its strategy focuses on sustaining rate adequacy, utilizing advanced data analytics to monitor and manage exposures, and leveraging its operating infrastructure to support steady, long-term growth. This super-regional U.S. property and casualty insurance holding company anticipates that its in-force policy count will rise gradually through 2025 and 2026, driving premiums improvement.

As of Sept. 30, 2025, HRTG had about 99.6% of its investment in fixed maturity securities, with the estimated weighted-average credit quality rating of the fixed maturity securities portfolio being A+. Fixed income securities increased by $45.3 million to $700.8 million from $655.6 million as of Dec. 31, 2024. The increase primarily relates to purchases of fixed-income securities with longer durations to lock in interest rates.
  
RenaissanceRe, based in Pembroke, Bermuda, primarily provides property-catastrophe reinsurance to insurers and reinsurers globally.
RNR has experienced a robust trend in net premiums earned, propelled by growth in both its segments. Market dislocation and rate increases favored net premiums earned in specialty lines. Regulatory reforms and higher demand for reinsurance in Florida are also driving performance.

As of Sept. 30, 2025, RNR had about 66% of its investment in fixed maturity securities, including US treasuries and agencies, corporate (including non-U.S. government-backed corporate), non-U.S. government, residential mortgage-backed, commercial mortgage-backed and asset-backed. These investments have a solid weighted average credit quality.

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This article originally published on Zacks Investment Research (zacks.com).

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