The Underlying Risks in Legacy Life Insurance Stocks: A Closer Look at Lincoln Financial and Jackson Financial

The life insurance sector, long a cornerstone of conservative investing, is facing a perfect storm of valuation pressures and sector-specific risks in 2025. As the Federal Reserve continues its aggressive rate-cutting cycle to combat persistent inflation, legacy insurers like Lincoln Financial (LNC) and Jackson Financial (JXN) are caught in a tug-of-war between asset-side gains and liability-side vulnerabilities. This analysis unpacks the nuanced challenges these firms face, from interest rate exposure to opaque corporate debt holdings, and what it means for investors.

Interest Rate Volatility: A Double-Edged Sword

The Fed's rate cuts, while boosting the fair value of long-term fixed-income assets in insurers' portfolios, are also squeezing investment returns. For Lincoln Financial, this dynamic played out starkly in Q1 2025: the company reported a $756 million net loss driven by a $900 million after-tax loss tied to market risk adjustments from falling interest rates and equity market declines, according to Lincoln Financial's Q1 2025 report. Yet, its adjusted operating income of $1.60 per share masked resilience in core segments, such as a 33% surge in annuities sales to $3.8 billion as noted in Lincoln Financial's Q1 2025 report.

Jackson Financial, meanwhile, has seen its stock price dip 4% in early October 2025 amid fears of tariff-driven economic uncertainty, according to a Federal Reserve note. While the firm's annuity sales hit $4.4 billion in Q1, analysts warn, in a Zacks industry outlook, that the Fed's rate cuts could erode returns on its investment portfolio, which is heavily weighted toward long-duration assets. This duality-higher asset values versus lower yields-is a hallmark of the sector's current struggle.

Sector-Specific Challenges: Corporate Debt and Credit Risk

Beyond interest rates, life insurers are grappling with a shadow risk: exposure to risky corporate debt. A 2025 Federal Reserve report highlights that life insurers now hold roughly double the share of general account assets in corporate debt compared to pre-2008 levels, according to the Federal Reserve report. For Jackson Financial, this is particularly concerning given its reliance on affiliated asset managers to generate returns. The firm's investment strategy, while historically robust, could face strain if a credit downturn hits sectors like real estate or lower-rated corporates, as Lincoln Financial's Q1 2025 report observes.

Lincoln Financial's recent partnership with Bain Capital-a $1 billion minority investment aimed at boosting private asset origination-signals a strategic pivot to mitigate these risks, per Lincoln Financial's Q1 2025 report. However, private assets come with their own liquidity challenges, especially in a tightening credit environment.

Valuation Pressures and Strategic Responses

Valuation pressures are intensifying as both firms navigate divergent paths. Jackson Financial's stock has seen a modest price target upgrade to $104.80 from $103, reflecting improved revenue growth projections and a $1 billion increase in its buyback authorization, according to a Zacks industry outlook. This move underscores management's confidence in its capital position but also raises questions about whether buybacks are being used to offset underlying earnings pressures.

Lincoln Financial's Q1 results, by contrast, highlight a more fragmented picture. While its Life Insurance segment improved operating losses year-over-year, the Annuities division's reliance on spread-based products (60% of sales) exposes it to interest rate volatility, as noted in Lincoln Financial's Q1 2025 report. The company's Bain Capital partnership may provide a buffer, but it also introduces complexity in assessing long-term value creation.

The Bigger Picture: A Sector at a Crossroads

The life insurance sector's challenges are emblematic of broader financial system risks. A 2025 Deloitte report notes a 20% spike in Chapter 11 filings in 2024, driven by corporate debt refinancing needs and regulatory shifts like the Supreme Court's Purdue Pharma ruling. For insurers, this means not only managing their own balance sheets but also navigating a landscape where policyholder liabilities are increasingly tied to volatile corporate credit markets.

Conclusion: Navigating the Risks

For investors, the key takeaway is clear: legacy life insurers are no longer "safe haven" plays in a low-rate world. Both Lincoln and Jackson face material risks from rate cuts, corporate debt exposure, and regulatory uncertainty. While strategic moves like Bain Capital's investment and expanded buybacks offer short-term relief, they do not address the structural challenges of a sector built on long-term, fixed-rate liabilities.

As the Fed's rate path remains uncertain, investors must weigh these firms' ability to adapt against the growing specter of credit stress and policy-driven volatility. In this environment, patience-and a healthy dose of skepticism-may be the best strategy.