U.S. life/annuity insurance segment’s bond portfolio yield hit its highest level in the past decade in 2024, increasing 22 basis points to 4.79%. At the same time, according to a new AM Best report, an increase in Schedule BA assets and mortgage loans has come at the expense of bond portfolio allocations, which have fallen nearly seven percentage points since 2015.

The Best’s Special Report, “US Life/Annuity Insurers Embrace Alternatives and Mortgages in 2024,” states that the life/annuity segment’s overall portfolio yield increased year over year by more than 25 basis points to 4.91% as older maturing bonds were replaced with new bonds yielding higher rates and new mortgages issued at higher rates. Net investment income for the life/annuity segment increased by 10% in 2024 to $246.9 billion, slightly higher than the 9% year-over-year increase recorded in 2023. In addition, according to the report, Mortgage loan portfolios have grown considerably over the last decade, and at year-end 2024 accounted for 14% of invested assets.

“Mortgage loan holdings have nearly doubled in the last 10 years, although the quality of mortgages in good standing continues to deteriorate as economic conditions impact debt service coverage and loan-to-value ratios, in addition to residential mortgages constituting a greater share of the portfolio,” said Kaitlin Piasecki, industry research analyst, Industry Research and Analytics, AM Best.

The report notes that alternative asset allocations also continue to grow as insurers seeking higher-yielding assets in the low interest-rate environment have expanded investments into private equity funds and alternatives such as private credit.

“The majority of private credit lies in senior notes and term loans, but structured private credit, particularly collateralized loan obligations, has grown markedly,” said Jason Hopper, associate director, Industry Research and Analytics, AM Best. “The amount of private credit on L/A insurers’ balance sheets, as well as the expertise required to manage the risk exposure of these holdings, raises the question of how much larger allocations to private credit can become.”

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=355833.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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