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Life Insurance Issuers Adding Riskier Investments

edited November 2021 in Other Investing
“U.S. life insurers are backing Americans’ policies with bigger slugs of riskier, higher-yielding investments. Holdings of real estate, below-investment-grade bonds, mortgage loans, private equity, hedge funds, limited partnerships and privately placed debt increased 39% from 2015 to 2020, outpacing the 26% increase in total cash and invested assets, according to a new report by Moody’s Investors Service. As a result, these so-called illiquid assets represented about 35% of insurers’ $4.04 trillion in investments as of Dec. 31, 2020, up from 32% out of $3.2 trillion in 2015.”

(Move to riskier assets may impact market liquidity - more evident during times of stress.)

Excerpt from WSJ (11/24/2921) - - Subscription Required


  • Maybe better off 85% tbills and 15% Bitcoin?

    Article is frightening to say the least

    Where are the adults at the Fed, White House and Treasury?

    Play stupid games win stupid prizes?

    Baseball Fan
  • edited November 2021
    “Where are the adults at the Fed, White House and Treasury?”

    @Baseball_Fan -

    Unfortunately, there’s little an individual investor can do to influence high level regulators or large institutional investors. IMHO, the best bet is to be aware of trends, risks and associated market psychology. Than play “CYA” - depending on age and circumstance.

    Thanks for commenting.
  • These days, a typical core-plus bond fund can have up to 35% in below investment-grade bonds.

    So, insurance companies having 35% in below investment-grade (and illiquid alternatives) doesn't sound so alarming. Leaving aside companies such as BRK that have heavy equity portfolios, most insurance companies portfolios are still heavy in fixed-income but lot of it of the type that you and I cannot tap as retail investors.
  • edited November 2021
    Where are the adults at the Fed, White House and Treasury?
    I'm sorry, but what does the White House have to do with insurance regulation? Or for that matter, the Fed or Treasury? Insurers, by and large, are regulated by individual states: I think you just couldn't resist getting in a dig at a president you dislike.
  • +1 Lewis 100% correct with regard to your last sentence !
  • @lewisbraham

    So you think the Fed is independent? C'mon man!

    Biden policies contribute mightily to inflation

    You think you can increase consumption without production and not have inflation?

    Darn right I don't care for that corrupt far leftist president. Clown show.

    Insurance companies going way out on risk curve due to policies suppressing interest rates

    Silent consfication thru silent tax called inflation take from producers and those who work and give to those looking for free handouts

    Best regards

    Baseball Fan
  • edited November 2021
    Silent consfication thru silent tax called inflation take from producers and those who work
    And what do you call it when companies extract ever-increasing profits from their employees for forty years without paying them a living wage while their CEOs make over 300 times their lowest paid workers? The minimum wage has actually fallen when adjusted for inflation since the 1980s while stock profits have soared. If we are experiencing wage inflation now, so be it.
  • edited November 2021
    “These days, a typical core-plus bond fund can have up to 35% in below investment-grade bonds.”

    I think it’s the trend towards assuming more risk rather than any particular asset class or investor that’s brought to the forefront by the WSJ article. If this is part of a broader national trend across different types of investors - both institutional and individual - than we may be setting up for significant liquidity issues and outsized losses next time around.

    Oppenheimer, while an exception, wrote the book on how not to run a Core Bond Fund. In 2008 theirs lost 41%, while their “Champion Bond Fund” did substantially worse.

    Brings to mind that old adage about “What’s in a name … ?”
  • Good point about OppenheimerFunds (thankfully merged away now into Invesco/IVZ) that was NOT following the script and had put lot of junk/HY in its core bond and allocation/balanced funds. Its Oppenheimer-Rochester funds were the junkiest of the junk but those investors knew the risks while core bond and allocation/balanced fund investors had no reasons to expect/suspect the bad stuff in their funds.

    It was also the manager of IL 529 and I complained to everyone (state regulators, M* (a 529 plan rater), in my own posts) but those early warnings/complaints were ignored. Eventually, OppenheimerFunds made token restorations in IL 529, was eventually replaced as its manager, and IL 529 is now a highly rated plan again (Gold by M*). Invesco/IVZ acquired OppenheimerFunds in 2019.

    But note that my reference above was to core-plus bond funds that can have up to 35% HY, while core bond funds have only 5% of less (unless they cheat).
  • edited November 2021
    In an important respect, the risks of owning private equity and debt are far greater in mutual funds, ETFs and hedge funds than life insurers. Life insurers have long-term floats or capital bases as people don’t “redeem” their capital until they die. Meanwhile mutual funds/ETFs must provide daily liquidity and hedge funds quarterly liquidity. So there shouldn’t be a run on insurer assets of panicked investors during a downturn. That would suggest they can afford to have some illiquid assets in the mix. The problems that could occur would be if they lever their investments—see AIG—or if there is actually a sudden increase in the death rate as, well, in a major pandemic. That said, levering ones bets on a seemingly safe liquid investment like mortgage bonds might be riskier than having less or no leverage on illiquid private debt. Also worth noting, while traditional insurers have been fairly conservative in their allocations historically in high quality bonds, some have chosen more equity exposure, notably Buffett’s Berkshire Hathaway.
  • Good point about insurance companies in general.

    But I have personally seen an insurance RUN - Mutual Benefit Life (MBL). It was a provider in my 403b. My BIG mistake was that when I first heard the news of the run, I tried to alert out HR person in-charge. I should have joined the run instead. Oh well, my money was just frozen for half-dozen years. No money lost in an absolute sense, but only in the sense of opportunity costs.

    I also learned how the state insurance programs work (or don't work). They certainly don't work like the FDIC insurance for failed banks.
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