U.S. life insurers still have almost three-quarters of their assets parked in bonds, but the value of their mortgage investments is growing much faster.
A team at the National Association of Insurance Commissioners’ Capital Markets Bureau has painted that picture in two new insurance company investment reports based on insurers’ financial statements for 2018.
U.S. life insurers ended 2018 with $4.2 trillion in cash and invested assets, up 1.3% from the total at the end of 2017.
Life insurers’ bond holdings increased by $17 billion — just 0.6% — to $3 trillion.
The biggest growth came in mortgage investments.
The value of life insurers’ mortgage investments increased by 9.3%, to $522 billion. The increase amounted to $44 billion, or the equivalent of about 170,000 new residential mortgage loans.
Here’s what happened to life insurers’ holdings of some other types of assets between the end of 2017 and the end of 2018:
- Cash: $105 billion (About the same)
- Stock: $158 billion (Down 4.8%)
- Derivatives: $56 billion (Down 3.8%)
- Unaffiliated Private Equity Arrangements: $56 billion (Up 9.3%)
- Unaffiliated Hedge Funds: $7.3 billion (Up 26%)
Michele Wong, the NAIC capital markets specialist who wrote on of the reports, concluded in her report that the prolonged low interest rate environment continues to push U.S. insurers into assets other than corporate bonds.
“Although these asset classes generally offer higher yields than public corporate bonds, they are typically less liquid, have less transparency and are subject to greater price volatility,” Wong wrote.