When interest rates were near historical lows, MetLife (NYSE: MET) and Prudential (NYSE: PRU) had a problem. They had made promises about future payments, but miserly interest rates made it more difficult to fulfill them profitably. Now that rates have increased a bit, meeting those policy promises is easier. And if rates rise, well, the story gets even better for MetLife and Prudential.
Which is why the outcome of the last Federal Reserve meeting was so positive for these life insurance companies. Here’s what’s going on and why a higher-for-longer rate environment sets MetLife and Prudential up for success.
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No cut from the new Fed chairman
Kevin Warsh was just installed as the new chairman of the Federal Reserve. Prior to his appointment, he was calling for rate cuts, a position that aligned with the President who appointed him. Some Fed watchers were worried that Warsh would simply follow the president’s lead when he took over the Fed’s top spot. That didn’t happen.
Instead, Warsh’s first Fed meeting ended without a rate change. But the group appears to be leaning toward raising interest rates to combat rising inflation. That is an ideal backdrop for life insurance companies like MetLife and Prudential.
What do life insurance companies do?
Life insurance companies collect premiums up front, while paying policy claims in the future. In fact, most people with life insurance probably hope they will never have to make a claim. In the meantime, life insurance companies have the cash from the premiums. That’s known as float, and companies like MetLife and Prudential invest that money to generate income and pay claims.
Because insurance companies know they will have to pay out money for claims, they tend to be fairly conservative with their investments. That means insurance company portfolios are usually heavily weighted toward bonds. MetLife, for example, has nearly 85% of its $450 billion investment portfolio in “fixed maturity securities” and mortgages. Prudential has a touch over 85% of its roughly $450 billion investment portfolio in bonds and mortgages.
Both MetLife and Prudential generate substantial income from their investment portfolios. In the first quarter of 2026, MetLife’s investment income totaled $4.8 billion, while Prudential wasn’t far behind at $4.5 billion.
Steady rates are good; higher is better
The rate environment is much improved from a few years ago, so MetLife and Prudential are likely pleased with the steady state of interest rates. This environment allows the companies to generate more investment income than they did when rates were lower. That, in turn, makes it easier to satisfy policies issued when rates were higher and allows the companies to make more profit on policies issued when rates were lower.
However, the bias appears to be for higher rates. If the Fed does increase rates, as Wall Street now expects, the story gets even better for MetLife and Prudential. They will, effectively, get to cash in on the rate hikes. To be fair, there are some negatives. Bond prices move in the opposite direction of interest rates. That means the value of their bond-heavy portfolios will likely decline. However, that’s only a problem if bonds are sold. If the bonds are held to maturity, market prices aren’t as important. Insurance companies often hold bonds until maturity, seeking to match their investments to their expected obligations.
Look for better days ahead for MetLife and Prudential
Given the current backdrop for interest rates, MetLife and Prudential appear well-positioned for strong results. Even if interest rates just hold steady, it is a win. Of the two stocks, Prudential looks like the better bargain, with its price-to-earnings and price-to-book ratios below their five-year averages. That said, MetLife’s first-quarter 2026 adjusted earnings growth of 18% was well above the roughly 10% put up by Prudential. That may make it more attractive to growth-oriented investors.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
