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 $2.5 trillion.
Property/casualty and life insurer investments differ according to their payout needs. Property/casualty insurers invest largely in high-quality liquid securities which can be sold quickly to pay claims resulting from a major hurricane, earthquake or man-made disaster such as a terrorist attack. This sector includes homeowners and auto insurance, where policies are in force for six months to a year, at most. In 2018 property/casualty insurers invested 23 percent of their assets in stocks, a highly liquid investment, and 60 percent in bonds, see chart below.
Life insurers’ benefit payments are more predictable, because life insurance policies and annuity contracts are much longer-term products, and generally are in force for ten years or longer. Life insurers invest more heavily in longer-term products. In 2018, life insurers invested 72 percent of their assets in bonds (compared with 60 percent for property/casualty insurers) and 2 percent in corporate stocks (compared with 23 percent for property/casualty insurers). (see chart, Investments, Life/Annuity Insurers, 2017-2018.) In addition, life insurers invested 13 percent of their assets in mortgage loans on real estate, investments that may take seven years or longer to mature, compared with property/casualty insurers, who invested only 1 percent of their assets in this sector.
($ millions, end of year)
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.