U.S. life insurers focused a little more on meat-and-potatoes types of assets in 2019.
The total value of their cash and invested assets increased 5.3% between the end of 2018 and the end of 2019, to $4.6 trillion, according to a new analysis from the National Association of Insurance Commissioners’ Capital Markets Bureau.
- Links to the NAIC’s Capital Markets Special Reports Index is available here.
- An article about the NAIC Capital Markets Bureau’s insurer asset report for 2018 is available here.
The Federal Reserve Board compiles other life insurer asset reports that show even bigger numbers, because it structures the types of data it includes in a different way.
How life insurers invest their assets is critical, because life insurers account for more than 4% of the United States’ $100 trillion in net wealth, and life insurers’ assets support life insurance, disability insurance, long-term care insurance and annuity obligations for any Americans who are using insurance to protect themselves against mortality, morbidity or longevity risk.
Life insurers’ asset-allocation choices affect the value of their benefits guarantees.
Life insurers’ allocation choices may also influence the investment choices of other players with long investment horizons, such as ordinary retirement services.
Because life insurers are especially big players in the U.S. corporate bond market, their activity in that sector may have some influence over the kinds of bonds available, and the rates the bonds pay.
Life insurers reported at least some growth in the dollar value of most types of investment holdings, but they reported the most growth for the kinds of assets that tend to be most popular with insurance regulators and rating agencies: corporate bonds and mortgages.
The value of life insurers’ corporate bond holdings increased $160 billion, or 8.7%, to $2 trillion.
Life insurers increased the share of their assets held in corporate bonds to 43.7%, from 42.4%.
Many life insurers like investing in mortgages, because mortgage lending tends to be reasonably low-risk, and home buyers often pay higher interest rates than corporate bonds do.
The value of life insurers’ mortgage assets increased $45 billion, or 8.4%, in 2019, to $579 billion.
The share of life insurers’ assets held in mortgages increased to 12.6%, from 12.3%.
Financial services companies can use derivatives to speculate on ups and downs in stock prices, interest rates, and currency exchange rates.
U.S. life insurers say they use derivatives mainly to try to insure their giant investment portfolios against fluctuations in stock prices, interest rates and exchange rates. For life insurers, the major risk associated with derivatives is the concern that, in very severe crises, some counterparties may have trouble meeting derivatives obligations.
The Federal Reserve Board and the U.S. Treasury have been easing concerns about the effects of the COVID-19 crisis on counterparties, by creating many new market stabilization programs.
The value of life insurers derivatives-related assets increased $23 billion, or 41%, in 2019, to $80 billion.
The share of life insurers’ assets tied to derivatives increased to 1.7%, from 1.3%.
— Read 5 Things to Know About Life Insurers’ Investment Machinery, for Agents, on ThinkAdvisor.