NU Online News Service, April 3, 7:08 p.m. – Analysts at Conning & Company, Hartford, argued earlier this week that U.S. life insurers would be better off if they had bought more stock from 1996 to 2000.

Conning analysts note in their company’s latest life industry investment profile that life insurers had just 1.7% of their investable assets in common stock at the end of 2000. That was about the same percentage of assets the insurers had in common stock five years earlier, the analysts write.

Over the same five-year period, the value of stocks listed on the Standard & Poor’s 500 stock index grew more than four times as fast as life insurer assets. If life insurers had used a less conservative investment strategy, the value of their assets could have grown considerably faster, according to George McKeon, a Conning assistant vice president who was the lead author of the study.

Property-casualty insurers invested more of their assets in stocks and raked in bigger profits, McKeon says.

Meanwhile, McKeon says, even as life insurers shunned the risk that stock prices might fall, many companies assumed more bond default risk by letting the quality of their bond holdings decline.

But other life insurance investment experts dispute the study’s conclusions, and not simply by pointing out that complete 2001 investment figures might make stock look less appealing.

Conning’s report “compares apples to oranges,” says Jerry Crute, associate director of investment research at the American Council of Life Insurers, Washington.

“The life insurance industry as a whole has $3 trillion in assets, compared to $880 billion for property-casualty,” Crute says.

Because life insurers have more money at risk, and they tend to take longer-term risks, investment safety, liquidity and flexibility are bigger concerns for life insurers, Crute adds.

But Crute points out that life insurers did increase the absolute dollar value of their stock holdings by 20.4% between 1997 and 2000, to $14 billion.

David Foy, chief financial officer of Hartford Life, a unit of Hartford Financial Services Inc., Simsbury, Conn., calls the stock market a double-edged sword.

“It’s great when markets are going up but not so much when it’s going down,” Foy says. “In terms of life insurance, your first job is to invest assets so they match your liabilities. Most life insurance liabilities are fixed and predictable in nature, so bond and fixed instruments tend to line up better than equities with the risk.”

Hartford Life has about 3% of its investments in “equity type instruments,” but little of the equity money is in S&P 500 common stock. Most of the equity investments are in arbitrage portfolios and other hedge instruments, Foy says.