2016: Life Insurance Industry Investments - Where are the Return Levers?



Price : $1,750.00



The continuing low interest rate environment has taken its toll on investment results for the industry. In 2015, gross book yield decreased once again for the life-annuity industry. Insurers have been searching for levers to improve their returns. Some insurers have managed to slow the speed of decline, but their portfolio yields still decrease. This study presents the strategic issues facing the life insurance industry and examines the industry’s asset portfolio by major asset class, by industry segments. The difference between insurers in terms of allocation and investment results was investigated, showing the effects of differences in size as well as choices in allocation among various asset classes.

1. Introduction 

2. Executive Summary 

3. Asset Allocations 

  • Life Industry Groupings
  • Defining Invested Assets and Investable Assets

4. Investment Returns 

  • 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

5. The Effect of Insurer Size on Allocation and Returns 

  • Dominance of Largest Insurers
  • Effect of Company Size and Asset Allocation
  • Effect of Company Size on Investment Returns
  • Essential Size Effect is Threshold of Opportunity

6. A Closer Look at Investment Returns 

  • Classifying by Performance
  • Mortgages and Schedule BA Have Weak Effect
  • Bond Portfolio Aspects
  • Risk Has Consequences

7. Bonds 

  • Holdings
  • Bond Characteristics
  • Book Yield and Total Return

8. Mortgages and Real Estate 

  • Mortgages
  • Real Estate
  • Combined Exposure to Commercial Real Estate

9. Equities—Preferred Stock, Common Stock, and Schedule BA 

  • Preferred Stock
  • Common Stock
  • Schedule BA

Appendices 

A. Statistical Summary by Business Focus

B. Business Focus and Size Peer Groups

C. Insurer Allocation of Investable Assets by Asset Class—2015

D. Methodology


Introduction

In 2015, the life insurance industry finally saw the Federal Reserve raising the short-term Federal Funds rate at the end of the year. However, even though further rises were forecast by the Federal Open Market Committee, as of the third quarter of 2016, no such increases have occurred.

The continuing low interest rate environment has taken its toll on investment results for the industry. In 2015, gross book yield decreased once again for the life-annuity industry. Insurers have been searching for levers to improve their returns, and yet, the interest rate environment has relentlessly pulled yields down. Some insurers have managed to slow the speed of decline, but their portfolio yields still decrease.

This study combines a discussion of strategic issues facing the life insurance industry with an examination of the industry’s asset portfolio based on statutory filings. In focusing on the industry’s assets, we looked at each major asset class and at trends and results for 430 insurers, grouped by business focus (life, annuities, accident and health, mixed, and reinsurance.)

In addition, the difference between insurers in terms of allocation and investment results was investigated, showing the effects of differences in size as well as choices in allocation among various asset classes.

This annual study of the life insurance industry investments can be used to benchmark insurer investment allocations and results, as well as to see larger investment trends of the industry, and where insurers have sought yield.