Life insurers have responded to the continued low interest rate environment by adding credit risk to their portfolios, according to a study by Conning.
The Conning study, "Life Insurance Industry Investments: Added Risk in 2013" analyzes life industry investments for the period 2009-2013 for the industry as a whole, by insurer size, and for five peer groups.
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Mary Pat Campbell, an analyst at Conning, said: "The spread between industry book yields and reference rates has been widening since 2009, which we believe reflects the increasing risk within the industry portfolio. Despite insurer movements, gross total returns for the industry turned negative in 2013, driven largely by interest rate movements."
Steve Webersen, director of research at Conning, said the industry’s quest for yield began in 2010 and has only increased in 2013.
Webersen said: "The largest shifts have included greater allocation to NAIC-2 rated securities and to private placement bonds, and insurers are not dissuaded by the risk-reward trade-off so far. That said, investment strategies differ greatly for different sized firms, and our analysis shows that the larger insurers are more focused on higher-risk assets generally."
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