According to the NAIC report, the U.S. insurance industry reported $8.5 trillion in total cash and invested assets (including affiliated and unaffiliated investments) at the end of 2023 compared to the end of 2022. It has become clear that the growth rate is slowly recovering from 1.3% in the previous quarter.
A study by the National Association of Insurance Commissioners (NAIC) states that the investment mix of the U.S. insurance industry’s asset portfolio is generally stable due to its large size.
As in prior years, the four largest asset classes reported on Schedule BA remain bonds, common stocks, mortgages, and other long-term investment assets.
Fixed income is the largest asset class, accounting for 60.8% of total cash and investment assets at the end of 2023. However, the proportion of bonds in the portfolio has declined from 62.3% at the end of 2022, and will only increase by 13.9% after the stock market recovers in 2023.
Additionally, insurance companies’ fixed income allocations have declined over the long term from around 70% at the end of 2010, which is likely due to the prolonged low interest rate environment making them more attractive and higher than other asset classes. This is likely due to the pursuit of yield.
The report also notes that U.S. insurance companies, especially life insurance companies, are increasingly turning to other asset classes, including mortgages and Schedule BA assets, for high-yield alternatives to traditional bonds. He pointed out that there was.
As of the end of 2023, mortgages and Schedule BA assets accounted for 9% and 6.3% of total cash and investment assets, respectively.
Mortgage and Schedule BA assets are the third and fourth largest asset holdings in the domestic insurance industry as a whole and the second and third largest assets in the life insurance industry.
Mortgage exposure grew faster than the growth in combined cash and investment assets, increasing 5.7% year over year at the end of 2023.
The NAIC report also found that asset-backed securities and other structured securities are once again among the fastest growing debt types.
The U.S. insurance industry’s bond exposure in 2023 totaled approximately $5.2 trillion at the end of 2023, an increase of 1.8% from the previous year.
Agency-guaranteed mortgage-backed securities (RMBS), private label RMBS, asset-backed securities (ABS) and other structured securities were the fastest growing fixed income types this year.
Their exposure increased by 13%, 13%, and 10%, respectively, compared to the previous year.
Finally, the NAIC study concluded that the credit quality of U.S. insurers’ fixed income investment portfolios continues to improve to pre-pandemic levels at the end of 2023.
Investment grade bonds, or bonds with a reported NAIC 1 or NAIC 2 designation, accounted for 95% of total fixed income exposure, up slightly from 94.7% at year-end 2022.
Bonds below investment grade, or a reported NAIC 3 or below, have further decreased to 5% of total fixed income exposure at year-end 2023.
Analysts warn that while U.S. insurers have limited their exposure to below-investment-grade bonds, they need to be monitored closely, especially as interest rates rise.
