Best’s Special Report: US Life/Annuity Investment Portfolio Yields Rebound in 2023
May 20 2024 - 11:23AM
Business Wire
Rising interest rates in 2023 helped boost the portfolio yields
of U.S. life/annuity insurers by nearly 30 basis points, to 4.74%
from 4.47% in the previous year, according to a new AM Best
report.
The Best’s Special Report, “US Life/Annuity Investment Portfolio
Yields Rebound in 2023,” states that the improvement in total
portfolio yield occurred as new dollars from strong annuity sales
and older maturing bonds were replaced with new bonds yielding
higher rates, along with new mortgages issued at higher rates. The
2023 gross yield was the highest recorded by the industry since
2019. Net investment income for the life/annuity segment grew by 9%
in 2023 to more than $224 billion, the second-highest percentage
growth in the last 10 years.
“Credit quality has begun to improve, with a notable migration
up the credit scale to NAIC-1, in the higher interest rate
environment,” said Kaitlin Piasecki, industry analyst, AM Best.
“Insurers have been able to earn higher yields while simultaneously
investing in higher-quality securities.”
According to the report, mortgage loan holdings, which had
nearly doubled in the last 10 years, grew at a slower pace in 2023,
by 5.6% to $733.7 billion. Problem loans—those with overdue
interest or that are in foreclosure or have been foreclosed—were up
by 82% in 2023, as the commercial real estate market continues to
face headwinds. However, these loans, including those that were
restructured, remain approximately just 1% of industry capital and
surplus.
“The insurance industry has been averse to commercial mortgage
classes such as office and retail, in favor of more credit-sound
industrial property and multifamily housing,” said Jason Hopper,
associate director, industry research and analytics, AM Best.
The report also states that alternative asset allocations also
continued to grow in 2023. The percentage of Schedule BA assets in
the total portfolio has increased each since 2016 and stood at 6.4%
in 2023. The growth in this asset class has been notable, as
insurers sought higher yielding assets in the low interest rate
environment, expanding their investments in private equity funds
and alternatives such as private credit.
To access the full copy of this special report, please visit
http://www3.ambest.com/bestweek/purchase.asp?record_code=343018.
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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Kaitlin Piasecki Industry Research Analyst +1
908 882 2458 kaitlin.piasecki@ambest.com Christopher
Sharkey Associate Director, Public Relations +1 908
882 2310 christopher.sharkey@ambest.com Jason Hopper
Associate Director, Industry Research & Analytics
+1 908 882 2807 jason.hopper@ambest.com Al Slavin
Senior Public Relations Specialist +1 908 882 2318
al.slavin@ambest.com