Best’s Special Report: U.S. Life/Annuity Insurers Increased Bond Purchases in 2024; Mortgages and Alternative Assets Investment Growth Muted

U.S. life/annuity (L/A) insurers allocated a higher share of new investment purchases toward bonds over mortgages and alternative assets through the first three quarters of 2024, when compared with the prior two years, according to a new AM Best report.

The Best’s Special Report, “NAIC-2 Bond Purchases Climb in 2024; Mortgages and Alternatives Muted,” notes that reinvestment of cash flows by L/A insurers into higher yielding bonds and mortgages drove net investment income by more than 8% year over year through the third quarter of 2024. “Insurers continue to invest in private credit and asset-backed securities,” said Jason Hopper, associate director, AM Best. “This in turn increases the focus on liquidity, capacity, and the continued appetite for this asset class, as well as the underwriting and due diligence of asset managers.”

According to the report, the quality of bond portfolios within the segment remains high and largely investment grade. More than 30% of newly purchased bonds in the third quarter of 2024 were rated NAIC-2, up nearly twofold from 16% in 2020, and marking the highest level in five years. The influx of NAIC-2 rated debentures has played a role by creating a supply side issue. “This increased supply of bond issues has lowered prices, making them more appealing to insurance companies looking for value in a competitive market and more attractive on a relative basis,” said Jacob Conner, associate analyst, AM Best.

Among the report’s other highlights:

• Mortgage loans accounted for 11% of all investment acquisitions as of third quarter 2024, with new acquisitions being fueled largely by residential properties;
• Insurers have been adjusting to downward pressure facing office properties since the COVID-19 pandemic, limiting new purchases and shrinking the allocation to this property type, favoring other property types with more attractive characteristics;
• Approximately 15% of alternative assets acquired by L/A companies through the third quarter of 2024 were private equity investments, significantly lower than its year-end 2023 allocation of over 45%;

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=352662.

To view a related video on the report featuring Jason Hopper and Jacob Conner, please visit http://www.ambest.com/v.asp?v=amblatrends425&AltSrc=182.

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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