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Life Insurers Nudged Bond Allocation Lower in 2020

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What You Need to Know

  • Allocations to cash and short-term investments climbed.
  • Investments in mortgages edged higher.
  • The value of assets invested in real estate fell slightly.

The share of U.S. life insurers’ portfolio value invested in bonds fell by about 1 percentage point between the end of 2019 and the end of 2020.

U.S. life insurers reached Dec. 31, 2020, with $4.9 trillion in cash and invested assets, up 7.3% from the year-earlier total.

After all of the concerns about low and falling bond yields in 2020, and all of the concerns about turmoil in investment markets in early 2020, as awareness of the impact of the COVID-19 pandemic swept the world, the value of life insurers’ bond holdings actually increased 5.8%, to $3.4 trillion.

But because the value of the bond holdings grew more slowly than overall portfolio value, the percentage of the assets invested in bonds fell to 69.1%, from 70.1% a year earlier.

A team at the National Association of Insurance Commissioners’ Capital Markets Bureau has published those figures in a new report based on U.S. insurers’ financial statements for 2020.

The Big Picture

Because of the nature of life insurance, long-term disability insurance, annuities and other products life insurers sell, life insurers tend to invest heavily in bonds, notes and other fixed-income instruments.

The Securities Industry and Financial Markets Association estimates that U.S. bond issuers had about $46 trillion in fixed-income securities outstanding in 2020.

The value of life insurers’ bond holdings amounts to about 7.4% of the value of U.S. bonds outstanding.

Life insurers are especially big holders of corporate bonds. U.S. corporate bond issuance increased to $2.3 trillion in 2020, from $1.4 trillion in 2019.

Life Insurers’ Asset Allocation Details

Here’s what happened to life insurers’ holdings of seven types of assets between the end of 2019 and the end of 2020:

  • Bonds: $3.4 trillion (up 5.8%).
  • Mortgages: $601 billion (up 3.8%).
  • Private Equity, hedge funds and other “Schedule BA” assets: $238 billion (up 11%).
  • Stock: $195 billion (up 8.7%).
  • Cash: $158 billion (up 28%).
  • Derivatives: $122 billion (up 53%).
  • Real estate: $23 billion (down 1.3%).

(Photo: Shutterstock)