2013: Life Insurance Industry Investments - A New Perspective on Asset Allocations and Returns
Conning’s annual in-depth analysis of life insurer assets and capital combines a discussion of strategic issues facing the life insurance industry with an examination of the industry’s investment portfolio. The study reviews each major asset class as well as shifting allocations and investment results in the industry from 2008-2012 in the aggregate and at the insurer level.
2. Executive Summary
3. Asset Allocations
4. Investment Returns
- Life Industry Groupings
5. A Different Look at Asset Allocations
- Investment Income and Expenses on Invested Assets
- Investment Income and Capital Gains and Losses on Investable Assets
- Gross Book Yield—Investable Assets
- Gross Total Return
- Returns by Asset Class
6. A Closer Look at Investment Returns
- Dominance of Largest Insurers
- Effect of Company Size and Asset Allocation
- Asset Allocation Clusters and Characterization
- Differences in Gross Book Yield Between Companies
- Differences in Bond Portfolios and Bond Yield Performance
8. Mortgages and Real Estate
- Bond Characteristics
- Book Yield and Total Return
9. Equities—Preferred Stock, Common Stock, and Schedule BA
- Real Estate
- Combined Exposure to Commercial Real Estate
- Preferred Stock
- Common Stock
- Schedule BA
A. Statistical Summary by Business Focus
B. Business Focus and Size Peer Groups
C. Group Allocation of Investable Assets by Asset Class—2012
In 2012, the life insurance industry found itself still challenged by the economic environment, as the continuing policy of low interest rates from the Federal Reserve takes its toll on fixed income yield. Insurers have been balancing their response between the decreasing rate environment with lessons learned in the aftermath of the financial crisis.
While insurers have seen their portfolios improve, as impairments on investments have greatly lessened since the crisis, insurers have been adjusting allocations in the investment portfolio to provide extra yield. From 2008 to 2012, insurers have shifted away from stock to reduce exposure to volatility, and have increased their allocation in yield-boosting assets such as those found on Schedule BA.
This study combines a discussion of strategic issues facing the life insurance industry with an examination of the industry’s investment portfolio. In focusing on the industry’s investments, we looked at each major asset class and at trends and results for 470 insurers. Each of the insurers was assigned a business focus (Life, Annuities, Accident & Health, Mixed, and Reinsurance), and statistics were tabulated at that level. In addition, new ways of grouping insurers beyond business focus have been investigated, with results from 2012 showing an industry that has been adjusting its portfolio in response to the challenge of decreasing yields.
Among life insurers, assets showed continuing recovery from losses that peaked in 2008 due to the credit crisis. As described in Chapters 3 and 4 of this study, both asset allocations and investment income have reflected this recovery, though investment results were depressed from earlier in the decade, reflecting the declining interest rate environment. In light of the challenges being faced by insurers in this environment, new perspectives on the industry portfolio and differences in approaches by insurers may be needed. Chapter 5 looks at the effect of insurer size on allocations as well as a different approach to building investment benchmarks for insurers. In Chapter 6, this new method of building benchmarks is applied to analyzing differences in book yield, and correlations between allocations and yield is investigated. The final three chapters of this study provide an analysis of investment performance by asset class, including consideration of allocations and returns.