A Firm Foundation: How Insurance Supports the Economy

Property/casualty (P/C) and life/annuity and insurers are key players in capital markets, with $8.3 trillion in cash and invested assets in 2018, according to S&P Global Market Intelligence. P/C insurer cash and invested assets were $1.7 trillion in 2018. Life insurance and annuity cash and invested assets totaled $4.1 trillion in 2018, and separate accounts assets and other investments totaled $2.5 trillion.

P/C and life insurer investments differ according to their payout needs. P/C insurers invest largely in high-quality liquid securities which can be sold quickly to pay claims resulting from a major hurricane, earthquake or man-made disaster such as a terrorist attack. This sector includes homeowners and auto insurance, where policies are in force for six months to a year, at most. In 2018 P/C insurers invested 23 percent of their assets in stocks, a highly liquid investment, and 60 percent in bonds (see chart below).

 

Life insurers’ benefit payments are more predictable, because life insurance policies and annuity contracts are much longer-term products, and generally are in force for ten years or longer. Life insurers invest more heavily in longer-term products. In 2018, life insurers invested 72 percent of their assets in bonds (compared with 60 percent for property/casualty insurers) and 2 percent in corporate stocks (compared with 23 percent for property/casualty insurers). (see chart, Investments, Life/Annuity Insurers, 2017-2018.) In addition, life insurers invested 13 percent of their assets in mortgage loans on real estate, investments that may take seven years or longer to mature, compared with property/casualty insurers, who invested only 1 percent of their assets in this sector.

Investments, Property/Casualty Insurers, 2016-2018 (1)

($ millions, end of year)

  Amount Percent of total investments
Investment type 2016 2017 2018 2016 2017 2018
Bonds $973,277 $979,530 $1,020,600 61.25% 57.91% 60.23%
Stocks 359,164 417,449 396,972 22.60 24.68 23.43
     Preferred 10,849 5,448 5,247 0.68 0.32 0.31
     Common 348,314 412,001 391,725 21.92 24.36 23.12
Mortgage loans on real estate 15,032 17,324 18,876 0.95 1.02 1.11
     First liens 14,407 16,643 18,220 0.91 0.98 1.08
     Other than first liens 625 681 656 0.04 0.04 0.04
Real estate 12,272 12,887 13,667 0.77 0.76 0.81
     Properties occupied by company 8,933 9,122 9,290 0.56 0.54 0.55
     Properties held for income production 3,061 3,543 3,950 0.19 0.21 0.23
     Properties held for sale 278 223 427 0.02 0.01 0.03
Cash, cash equivalent and short-term investments 92,340 115,060 101,384 5.81 6.80 5.98
Derivatives 531 233 411 0.03 0.01 0.02
Other invested assets 128,710 137,878 133,876 8.10 8.15 7.90
Receivable for securities 1,679 2,102 1,919 0.11 0.12 0.11
Securities lending reinvested collateral assets 2,582 4,440 4,804 0.16 0.26 0.28
Aggregate write-in for invested assets 3,319 4,673 1,915 0.21 0.28 0.11
Total cash and invested assets $1,588,905 $1,691,575 $1,694,424 100.00% 100.00% 100.00%

(1) Includes cash and net admitted assets of property/casualty insurers.

Source: NAIC data, sourced from S&P Global Market Intelligence.

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Bonds

Property/casualty insurers invest primarily in safe, liquid securities, mainly bonds. These provide stability against underwriting results, which can vary considerably from year to year. The vast majority of bonds are government issued or are high-grade corporates. Bonds in or near default accounted for less than 1 percent (0.12 percent) of all short- and long-term bonds owned by insurers at the end of 2018, according to S&P Global Market Intelligence.

Investments, Property/Casualty Insurers, 2018

 

(1) Cash and invested net admitted assets, as of December 31, 2018.
(2) Includes mortgage loans on real estate.

Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.

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