Disability Insurance

# Executive Summary * The disability insurance industry is being reshaped by technology, with leaders leveraging AI to drive significant efficiency gains, lower costs, and create a distinct competitive advantage. * A volatile economic environment is creating a dual impact, as rising interest rates boost investment income while market fluctuations pressure GAAP earnings and new business growth. * Aggressive capital management is a dominant theme, with major players executing large-scale reinsurance deals to de-risk legacy portfolios and free up capital for growth and shareholder returns. * The market remains highly competitive, with differentiation shifting towards technological capability, global diversification, and integrated, workplace-focused benefit solutions. * Financial performance is diverging, with core operating earnings showing resilience while reported net income is subject to significant volatility from investment markets. * Long-term demand is supported by an aging workforce and evolving health trends, requiring ongoing product innovation. ## Key Trends & Outlook The most significant force shaping the disability insurance industry is the rapid integration of technology and artificial intelligence, which is fundamentally altering operations and creating a new basis for competition. Leading insurers are deploying AI to achieve substantial, measurable efficiencies, with Manulife, for instance, generating over $600 million in benefits from its AI initiatives in 2024. This technological investment translates directly into lower operating costs and faster service, impacting margins and customer retention, as evidenced by MetLife's use of AI-driven underwriting enabling 25% faster policy issuance and 15% lower unit costs. This trend is creating a clear performance gap between firms that invest heavily in digital capabilities and those that lag, with the impact being immediate and ongoing, forcing all competitors to allocate significant capital toward technology to remain viable. The industry is navigating a volatile economic landscape characterized by higher interest rates and market uncertainty. This environment provides a tailwind to investment income, a core earnings driver, as seen in Lincoln National's improved investment yield of 4.64% for Q3 2025, up from 4.37% in Q3 2024. However, this same volatility creates significant fluctuations in reported net income due to unrealized investment gains and losses, exemplified by MetLife's Q3 2025 results where net income fell 36% year-over-year despite a 15% rise in adjusted earnings. The primary opportunity lies in leveraging AI and digital platforms to not only cut costs but also to develop personalized products for underserved markets, such as gig economy workers. The key risk is a sharp economic downturn, which would simultaneously pressure new sales, reduce investment income, and increase disability claims, compressing margins from multiple directions. ## Competitive Landscape The disability insurance market is dominated by large, diversified players and is undergoing consolidation, particularly in the distribution channels where private equity-backed buyers now control 72% of M&A transactions through September 2025. One primary competitive approach involves firms leveraging global scale and a broad portfolio of financial products. These companies compete by offering a diverse range of insurance, retirement, and asset management solutions across multiple geographies, with a significant focus on high-growth Asian markets. Manulife exemplifies this strategy, explicitly focusing on high-growth businesses in Asia and its Global Wealth and Asset Management arm, leveraging its global footprint and integrated financial solutions as key differentiators. Conversely, other major players concentrate on the U.S. market, differentiating themselves by offering a deep, integrated suite of benefits tailored specifically for employers. Unum Group serves as a prime example, with its business model explicitly centered on delivering disability and other financial protection products primarily through the workplace in the U.S., UK, and Poland, emphasizing its comprehensive suite of employer-sponsored benefits. The key competitive battleground is now technological superiority, as both models are aggressively investing in AI and digital platforms to enhance efficiency and customer experience. ## Financial Performance Revenue growth is bifurcating, driven largely by geographic exposure and success in specific product segments. Companies with strong performance in high-growth international markets are outperforming those more reliant on domestic segments facing economic headwinds. Manulife's robust 8% year-over-year growth in APE sales to $2.576 billion in Q3 2025, fueled by its Asia segment, exemplifies this high-growth path. In contrast, MetLife's Q3 2025 total revenue of $17.36 billion missed consensus estimates by approximately 7.5%-8.4%, highlighting the challenges in the current environment. {{chart_0}} A significant divergence exists between volatile GAAP net income and more stable core or adjusted operating earnings. This pattern is a direct result of the volatile economic environment, where core underwriting and business operations remain profitable, but mark-to-market accounting on large investment portfolios introduces significant fluctuations to the bottom line. MetLife is a clear case study, with its net income falling 36% year-over-year to $818 million in Q3 2025, while its adjusted operating income rose 15% to $1.584 billion. Operational leaders like Manulife are still achieving margin expansion, with its core EBITDA margin expanding to 30.9% in Q3 2025 from 27.8% in the prior quarter. {{chart_1}} The primary capital allocation theme is a two-pronged strategy of de-risking the balance sheet while simultaneously returning significant capital to shareholders. Having navigated recent economic uncertainty, companies are now confident enough in their capital positions to increase buybacks and dividends. Unum Group exemplifies this dual strategy, having executed a major reinsurance agreement with Fortitude Reinsurance Company Ltd. in July 2025 to shed legacy risk, while also repurchasing 7.10 million common shares for $505.9 million and increasing its quarterly common stock dividend by 10% in the first half of 2025. {{chart_2}} Balance sheets across the industry appear generally robust and strengthening. Companies are proactively managing their liabilities and building up liquidity and capital buffers to ensure resilience against future economic shocks. Lincoln National serves as a strong proof point, with its estimated Risk-Based Capital (RBC) ratio well above the 420% buffer, exceeding 430% by the end of 2024, and its net unrealized losses on available-for-sale securities narrowing by $1.4 billion year-over-year as of June 30, 2025.