Investments in Bonds Help Life Insurers Meet Commitments to Customers

Feb 14, 2020

[Life Insurance 101 Series: This series features IMPACT posts that detail the breadth of the industry’s reach and benefits provided to consumers.]

The life insurance industry has $6.3 trillion invested in the U.S. economy, making it one of the largest sources of investment capital in the nation. To help wrap your head around that, $1 trillion is roughly enough to buy the Miami Marlins baseball team—1,000 times over.

Life insurers’ significant investments in long-term corporate bonds support American businesses and the construction of new schools, roadways and transportation projects. They also sustain real estate growth and job creation. Life insurers also invest in government bonds. Bonds held by the industry rose from $2.5 billion in 1918 to $3.5 trillion in 2018, the most current data available.

Life insurers’ record of being major investors in bonds is based on these assets being dependable long-term fixed income securities that generally have a lower risk. It’s the perfect marriage for an industry that offers lifetime guarantees and the safety net that individuals and families depend on for the things that matter most.

When life insurers purchase bonds, over 70 percent have a maturity of 10 years or more, with 40 percent of the bonds having a maturity of 20 years or more. The long-term duration of these bonds match up with the long-term promises made by life insurers, notably the reserves held by insurers to back their guarantees to policyholders and their beneficiaries.

The bond holdings of life insurers include both public bonds and private placement bonds. Roughly two-thirds of the holdings are in public bonds which are publicly traded securities. Private bonds, also known as private placements, are security investments usually made directly by the life insurer with a corporate borrower.

The quality of both public and private bonds held are extremely high. In 2018, 96 percent of public bonds held by life insurers were in the two highest classes (Class 1 and 2), while 92 percent of private bonds were in Class 1 and 2.

Life insurers have for decades been one of the largest investors in corporate bonds, including private placements. These investments help America grow while also supporting the guarantees life insurers make to their customers.

Khari Cook

Khari Cook is Senior Analyst, Research at the American Council of Life Insurers (ACLI). He is primarily responsible for data analysis of life insurers’ quarterly and annual statutory filings, along with company product line and investment survey data.