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Portfolio > Economy & Markets > Fixed Income

Life Insurers Added Asset-Backed Securities in 2021

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What You Need to Know

  • U.S. life insurers increased assets 5.1% between 2020 and 2021.
  • They ended 2021 with $5.2 trillion in cash and invested assets.
  • They increased corporate bond holdings by $105 billion.

U.S. life insurers continued to make corporate bonds their main investment course in 2021, but they increased asset-backed securities allocations to add some yield spice.

The Capital Markets Bureau, an arm of the National Association of Insurance Commissioners, has published a life insurer portfolio snapshot in its latest annual report on U.S. insurers’ cash and invested assets.

The life insurers included in the report increased their total holdings 5.1% between 2020 and 2021, to $5.2 trillion.

What It Means

If you or your retirement planning clients want to know where the big financial services giants put their assets, here’s a look at how some of the giants allocate their assets.

How Life Insurers Invest

Life insurers tend to have products and benefits obligations that stay in place for decades, and they invest heavily in high-grade corporate bonds, mortgages and other long-duration assets.

They have some goals in common with ordinary retirement savers, but they have an even longer horizon and can afford to lock cash away for decades.

The Allocation Shifts

Life insurers continued to hold about 69% of their cash and invested assets in bonds, and $105 billion of the $252 billion 2021 increase in life insurer assets flowed into additional corporate bonds.

Life insurers are known for avoiding common stock, but stock market growth increased the value of their stock holdings 15%, to $223 billion.

In percentage terms, life insurers’ biggest asset allocation increases went into instruments such as mortgages and asset-based securities.

Mortgage holdings increased by 6.6%, and $40 billion, to $640 billion.

Asset-based securities holdings rose 9.3%, and $33 billion, to $393 billion.

Growth in mortgage-backed securities that insurers held on their own books offset reductions in the use of mortgage-backed securities backed by government-sponsored enterprises.

Life insurers held $179 billion in agency-backed residential and commercial mortgage-backed securities in 2021, down from $209 billion in 2020.

But life insurers increased their holdings of “private-label” residential and commercial mortgage-backed securities to $231 billion, from $200 billion.

(Photo: Susana Gonzalez/Bloomberg)