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Fitch Releases Special Report on U.S. Life Insurers' Investment Portfolios
[August 28, 2015]

Fitch Releases Special Report on U.S. Life Insurers' Investment Portfolios


Fitch Ratings today has released a Special Report that examines the investment portfolios of U.S. life insurance companies at year-end 2014. The results of the report are based on statutory information Fitch compiles annually from an investment survey of its universe of rated life insurance entities. Fitch estimates these results represent approximately two-thirds of the total life insurance industry's general account invested assets and include 14 of the largest 20 life insurance groups in the U.S. based on total admitted assets.

In this report, Fitch analyzes each asset class within the life companies' investment portfolios. At year-end 2014, general account assets were predominately invested in fixed-income securities, including bonds and mortgage loans. For the 33 insurance groups Fitch surveyed, fixed-income securities on average accounted for 84% of total invested assets. The remaining 16% comprised contract loans at 4%, cash and short-term at 2%, common and preferred stock at 2%, derivatives at 1%, real estate at 1%, and other invested assets including those shown on Schedule BA of the statutory statements at 6%.

As interest rates remain at historically low levels, life insurers have made a modest allocation shift into less liquid asset classes, including alternative investments, private placement corporate bonds and commercial mortgage loans. However, purchases of high-yield fixed-income assets appear to be limited. For the companies Fitch surveyed, the following asset classes as a percent of investments increased from 2011 to 2014: Schedule BA from 4.6% to 5.4%, mortgage loans from 11% to 11.7%, and private placements from 15.1% to 15.6%.

The bond portfolios of the companies surveyed were heavily weighted toward corporates, which accounted for 62% of the total bond holdings. The credit quality of corporate bonds was generally high with an average credit rating in the 'A'/'BBB' range. Approximately 11% of corporate securities were below investment-grade.

For the surveyed universe, structured securities represented 25% of the bond portfolio. This included agency pass-throughs, commercial mortgage-backed securities (CMBS), non-agency residential mortgage-backed securities (RMBS), and asset-back securities (ABS (News - Alert)). Exposure to the various asset classes was essentially flat relative to the prior year. CLOs rpresented 36% of the total ABS portfolio, up from 33% in 2013 and 21% in 2012.



In general, government securities constituted a small portion of life insurers' bond portfolios, since these securities offer low yields. U.S. Treasurys and agencies accounted for almost 6% of total invested assets, municipals accounted for almost 3% and foreign governments accounted for over 1%.

Overall quality of commercial loan portfolios remains solid. Ninety-seven percent of commercial loans had loan-to-values below 80% at year-end 2014, up from 96% at year-end 2013 and 94% at year-end 2012. Debt service coverage ratios (DSCR) were also strong; only 4% of commercial mortgage loans had DSCRs below 1x.


Direct common and preferred equity exposure in life insurers' general account portfolios remains low at 2%. Companies also can gain additional exposure to asset classes such as common equity and structured securities through investments held in Schedule BA. For most life companies, the bulk of their equity market exposure is taken via guarantees provided on products held in separate accounts. Companies also can gain additional exposure to asset classes such as common equity and structured securities through investments held in Schedule BA.

Cash and short-term investments as a percentage of total invested assets was 2% at year-end 2014, unchanged from the prior year end.

The report 'Life Insurers' Investment Portfolios: Results of Fitch's Year-end 2014 Survey' dated Aug. 28, 2015, is available at 'www.fitchratings.com' under 'Insurance' and 'Special Reports' or by clicking on the link.

Additional information is available on www.fitchratings.com

U.S. Life Insurers' Investment Portfolios (Results of Fitch's Year-End 2014 Survey)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869426

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