U.S. Insurance Industry’s Structured Securities Holdings Top $1 Trillion

The U.S. insurance industry’s overall holdings of structured securities rose for a third straight year, by nearly 7% in 2018, and now top the $1 trillion mark, according to a new AM Best report.

The new Best’s Special Report, titled, “Insurers’ Structured Securities Holdings Continue to Rise,” states that all three U.S. insurance segments grew their structured securities holdings in 2018, with property/casualty holdings up by 14.3%; life/annuity holdings by 4.1%; and health by 22.2%. Market issuance of structured securities declined marginally in 2018, by 3%, but was up 4.9% in 2017, after rising 11% in 2016 and 16% in 2015. Collateralized loan obligations (CLO) issuance dropped by nearly 5% in 2018 to $280.7 billion, but between 2016 and 2017 had more than doubled. Insurers continue to add to their CLO allocations, with industry holdings climbing consistently each of the last five years, up 28% in 2018 to $82.2 billion. The life/annuity segment holds roughly 80% of industry CLOs, and its holdings increased by 25% in 2018 to approximately $65 billion.

Other report highlights include:

• Since 2016, the life/annuity segment has reported a decline of 7.2% in residential mortgage-backed securities, but increases of 13.1% in commercial mortgage-backed securities, and 14.9% in other asset-backed securities.
• New issues of student loan-backed securities (SLABS) increased by 18% in 2018 to $18.9 billion, following a decline of more than 2% in 2017.
• The life/annuity industry was the only major U.S. insurance segment to reduce its SLAB holdings in 2018, but all three increased their SLAB holdings substantially in 2017, with the life/annuity segment increasing its holdings by almost $2 billion (31%).
• Insurers’ holdings in auto loan-backed securities remain modest, at $16 billion, as are holdings in credit-card backed securities. Exposure is minimal, and over 98% are investment grade.

Structured securities can provide bond portfolio diversification, and AM Best views allocations to various types of structured securities as it would many other traditional asset classes, and expects companies to be able to discuss their investments in detail as part of the rating process.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=288181.