As of December 2024, the life industry held a carrying value of nearly $5.5 trillion in cash and invested assets with an average net yield of 4.57%. After a drop of 60 basis points (bps) from 2018 to 2022, average yield experienced an uptrend in 2023 and 2024 with an increase of 28 bps and 29 bps, respectively, resulting in the highest net yield for the industry since 2018. However, net yield is still below the level seen during the near-zero interest rate environment of 2008–2015. This has continued to lead the life insurance industry to diversify their portfolio in search of higher yields. At year end 2024, the top four holdings in unaffiliated assets of life insurers were corporate credit (43%), mortgage loans (15%), loan-backed and other structured assets (10%), and Schedule BA and other investments (7%). These assets make up approximately 76% of investments, showing a 0.7% increase in allocation from 2023, an 8% increase from 2012, and a 9% increase from 2007.
In addition to analyzing the entire life insurance industry on a time horizon, we also considered how company size and type would impact investment portfolios. Small- and medium-sized companies, because of their limited capacity to invest in complex or alternative assets, rely more on investment-grade public bonds to generate yields and have less exposure to mortgage loans, private placements, bonds below investment-grade quality, structured securities, and alternative assets than large companies. Life insurance-owned private equity (PE) companies’ investment strategies are weighted heavily toward non-agency mortgage-backed assets, other loan-backed securities, and alternative assets including PE and hedge funds.
Several strategies and key findings of our analysis are summarized below.
Investment in mortgage loans
Mortgage loans, in particular commercial mortgage loans, have remained an attractive asset class among U.S. life insurers due to their higher yields compared with corporate credit and government bonds. As of December 31, 2024, the total carrying value of mortgage loans held by all U.S. life insurance companies was approximately $788 billion, and the average gross yield was 4.97%, a 31-bp increase in gross yield from 2023. Despite a decrease in average gross yield noticed in years 2021 and 2022, 2023 and 2024 continued the upward trend of mortgage loans holding amounts experienced since 2010. The residential sector has gained interest in recent years as well. Industry holdings of residential mortgage loans have more than quadrupled since 2020, with a total carrying value of $117.4 billion in 2024 versus $31.8 billion in 2020. Residential mortgage loans grew from 11.2% to 14.9% of total mortgage loans held by life insurers in 2024 alone.
Investment in private bonds
With higher yields and lower default risk in general (compared with public bonds with similar credit ratings), investment in private bonds has been steadily increasing for the past several years. At year end 2024, private bonds accounted for 45.9% of total bond holdings, a 1.2% increase from 2023. The total private bond holdings reached $1.72 trillion, a little over a $1 trillion increase since 2007 and a $107.9 billion increase over 2023 holdings.
Investment in structured assets
Investment in structured securities provides further diversification among bond investments, lowering the overall portfolio risk. While the percentage of bonds invested in residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) has declined since the financial crisis, life insurers have been steadily increasing the allocation of other asset-backed securities (ABS). In 2024, the percentage of total bonds in other structured securities reached 14.5%, the highest level since before the financial crisis. CMBS and RMBS allocations were still much lower than pre-financial-crisis levels at 5.0% and 5.9%, respectively. Life insurance-owned PE companies continue to invest heavily in structured securities, with these assets accounting for approximately 49% of total bonds. In 2024, life insurance-owned PE companies held around 63% of total unaffiliated assets in bonds.
Investment in Schedule BA assets
Life insurer investment in Schedule BA holdings set a new high with approximately $374 billion in 2024, a new peak after the previous record of $336 billion in 2023. Schedule BA asset allocations accounted for 7.4% of unaffiliated investments, a 0.5% increase over 2023 data. Part of this was due to the NAIC new principles-based bond definition that resulted in the reclassification from Schedule D to Schedule BA for certain residual tranches of collateralized loan obligations (CLOs). With an average gross yield of 4.3%, Schedule BA assets are an attractive asset class for insurers searching for higher returns in the current rising interest rate environment, but alternatives present a greater risk of volatility, as seen by the most recent two-year decline in yields. Since 2007, the percentage of unaffiliated investments in Schedule BA holdings as a percentage of total portfolio has increased by approximately 4.3%.
Investment in NAIC 2 bonds and high-yield bonds
The allocation to high-yield bonds (rated NAIC 3 or lower) increased for a few years after the financial crisis; however, allocation has been decreasing in recent years, reaching its lowest allocation since 2007 at 4.8% in 2024. In 2020, the allocation to high-yield bonds increased to 6.2%, like earlier years, as insurers increased risk to achieve higher yield during the low-interest-rate environment. As interest rates began to rise quickly from 2022 to early 2024, the trend reverted to decreasing allocations for life insurers, with 5.4% in 2022, 5.0% in 2023, and 4.8% in 2024. Life insurers also shifted their allocation weight among the investment-grade assets as yields on those assets recently increased. Since 2023, the allocation of bonds to NAIC 1 in 2024 remained relatively unchanged at 58.7%, while NAIC 2 allocations increased 0.3% to 36.5%. Life insurers continue to balance the additional risk of these bonds with the higher return they provide.
Investment in exchange-traded funds
Exchange-traded fund (ETF) exposure in the U.S. life insurance industry has grown dramatically since 2007, experiencing its largest increase during 2024 after back-to-back years of decreases. The higher liquidity, greater diversification benefits, and potentially favorable capital treatment associated with ETFs have been major draws for life insurers. In April 2017, the NAIC revised its methodology of how certain fixed-income ETFs can be valued. Starting January 1, 2018, the new systematic value method allowed insurers to report certain fixed-income ETFs like ordinary bonds, as these investments can be amortized quarter to quarter. Life insurers have increased their exposure in ETFs from around $0.3 billion at year end 2007 to $11.4 billion by December 31, 2024. This includes an increase of $2.0 billion in 2024 holdings over 2023 data.
To read a detailed analysis of all topics, download the full report. Note that the investment strategies of any individual company may differ from what is summarized above.