29 May 2024

Insurance Solutions: Four Themes Emerging in Life Insurers' Asset Allocations

Life insurers are continuing to move toward less liquid securities—which provide the potential for yield enhancement—while simultaneously de-risking from a credit perspective.

Insurance companies have recently released their statutory filings for year-end 2023, presenting an opportunity for a deep dive into what's driving asset allocations within life insurers' portfolios. While some new trends have emerged, there are also old trends that have continued and some that have been broken from this year's data. Below we highlight four key themes that are shaping asset allocations for life insurers.

1. Up in Credit Quality

Allocations to the highest rated NAIC 1 class (A- and higher) have continued higher since 2022 when the industry broke a string of five years of declining allocations. In particular, allocations increased by 1.7% from the year prior, to 59.1% of total bonds.1 Within NAIC 1, AAA-rated growth has been flat with increases seen mainly in the AA and A-rated categories. This credit improving increase in NAIC 1 has largely come from the NAIC 2 (BBB+/-) class, which saw a stark reduction of 1.3% of total bonds from 2022. High yield allocations have also been declining since hitting a peak in 2020.

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