The life insurance industry’s assets are growing, but not as fast as in previous years. Insurers have been frustrated by low interest rates but remain wary of chasing yields through the types of investments favored in the run up to the 2008 financial meltdown, according to an annual industry analysis by Conning, an investment management company focused on the insurance industry.

Highlights from the report:

Investable assets for the industry increased 4 percent in 2014, to $3.4 trillion.
$2.8 trillion, or 82 percent, of assets were in bonds.
Gross investment income increased 5.2 percent, to $199.7 billion.
Gross book yields decreased 8 basis points, to 4.98 percent of investable assets.
The largest insurers only account for 10 percent of the industry count, but hold 85 percent of investable assets.
The smallest insurers, who account for 40 percent of the total count, hold 0.1 percent of assets.

“The quest for yield has been the key focus for the life industry investment portfolio for years now,” said Mary Pat Campbell, Vice President, Insurance Research at Conning. “In response to the continued pressures of the low interest rate environment, insurers have been adjusting allocations in the investment portfolio to provide the much-needed extra yield.”

Insurers, the report explained, are seeking to reduce the volatility of their portfolios by shifting away from stocks to bonds. Unfortunately for the investors, stubbornly low interest rates have made it hard to make money in the bonds market.

But while the report notes that the Fed still hadn’t increased the federal funds rate, which has remained near zero since 2008, recent news suggests that it is likely to raise rates soon in response to improving jobs numbers.

In an appearance before a Congressional committee last week, Fed Chairwoman Janet Yellen said that she was considering raising the short-term interest rate as soon as next month, as long as the economy continues to improve. Less optimistic monetary experts have highlighted recent economic woes overseas, particularly in China, in suggesting the Fed should approach rate hikes with caution.

Instant Insights /

Low interest rates present challenges for life insurers

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