US insurance industry’s cash and invested assets increase of 4.4% in 2023: NAIC

The US insurance industry reported $8.5 trillion in total cash and invested assets, including affiliated and unaffiliated investments, at year-end 2023, compared to year-end 2022, with growth rebounding modestly from 1.3% in the prior period, an NAIC report revealed.

The research by the National Association of Insurance Commissioners (NAIC) also stated that the composition of investments in the US insurance industry’s asset portfolio has generally remained stable due to its significant scale.

Consistent with prior years, the four largest asset classes have remained bonds, common stocks, mortgages, and other long-term invested assets reported in Schedule BA.

Bonds are the largest asset class at 60.8% of total cash and invested assets at year-end 2023. However, their share in the portfolio declined from 62.3% at year-end 2022, only increasing 13.9% following an equity market recovery in 2023.

Furthermore, insurers’ allocation to bonds has declined over the long term from approximately 70% at year-end 2010, likely due to their chasing more attractive and higher yields in other asset classes during what was a prolonged low interest rate environment.

The report also noted that, looking for a higher-yielding alternative to traditional bonds, US insurers, particularly life insurers, have increasingly turned to other asset classes, which include mortgages and Schedule BA assets.

As of year-end 2023, mortgages and Schedule BA assets represented 9% and 6.3%, respectively, of total cash and invested assets.

Mortgages and Schedule BA assets are the third and fourth largest asset holding for the overall insurance industry in the country, and the second and third largest for the life insurance industry.

Mortgage exposure grew at a faster pace than growth in total cash and invested assets, increasing 5.7% at year-end 2023 compared to the prior year.

The NAIC report also found that the asset-backed securities and other structured securities are among the fastest growing bond types once again.

In 2023 the US insurance industry’s exposure to bonds totalled almost $5.2 trillion as of year-end 2023, an increase of 1.8% compared to the prior year.

Agency-backed residential mortgage-backed securities (RMBS), private-label RMBS and asset-backed securities (ABS) and other structured securities were the fastest growing bond types in the year.

Their exposure increased 13%, 13%, and 10%, respectively., compared to the year prior.

Finally, NAIC’s research concluded, at year-end 2023, the credit quality of US insurance companies’ bond investment portfolios has continued to improve to pre-pandemic levels.

Investment grade bonds, or those with reported NAIC 1 or NAIC 2 designations increased modestly to 95% of total bond exposure from 94.7% at year-end 2022.

Below-investment-grade bonds, or those with reported NAIC 3 designations and below, decreased further to 5% of total bond exposure at year-end 2023.

Analysts warn that, while US insurers have limited exposure to below-investment-grade bonds, it should be monitored closely, particularly amid higher interest rates.

The post US insurance industry’s cash and invested assets increase of 4.4% in 2023: NAIC appeared first on ReinsuranceNe.ws.

Leave a Reply

Your email address will not be published. Required fields are marked *