Life insurance companies invest pension and life insurance reserves primarily in bonds, according to Federal Reserve Flow of Funds Table F117 for Q3 2005.

As the graph shows, although life insurers directed a large portion of cash flows into equities and mutual funds in the years 1998-2000, they returned to a more conservative position after the stock market crash of 2000-2001.

The graph suggests, also, that life insurance has not been a growth industry since 2001, with the volume of new funds flowing into portfolios holding more or less steady.

However, over the decade, there has been growth.

Life Insurers Favor Corporate Bonds

Although favoring agency securities and treasuries in 2002, life insurers quickly returned to their traditional investment behavior of buying mostly corporate bonds. The graph shows that after the stock market crash of 2000-2001, investments in the bond market by life insurance companies more than doubled.

Main Business of Life Insurers Is Now Pensions

Since 1997, pension funds have become the principal business of life insurance companies, as indicated by the relative size of life insurance and pension funds reserves on the following graph:

Over the last half century, there has been a long-term change in the life insurance business, driven at first by an increased awareness of inflation that moved people out of whole life policies into term insurance, and now by an aging population that has created a large market for pension products.

This entry was posted on Tuesday, February 21st, 2006 at 10:51 am and is filed under Treasuries, Open Market, Agencies, Mortgages, Corporate Bonds, Insurance Executives. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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