US insurance industry’s high-yield bond investments near $300bn at year-end 2021

Written by Adam Cadle

14/10/2022

The US insurance industry reported $295bn in high-yield bond investments at year-end
2021, an increase of 3% compared to year-end 2020, amid the credit markets recovering from the impact of the COVID-19 pandemic, the NAIC has said.

High-yield bonds accounted for 6% of the industry’s total bond exposure, just below the highest level in more than 10 years of 6.1% recorded at year-end 2020.

Bank loans and asset-backed securities (ABS) and other structured securities were the primary contributors to the increase in high-yield exposure in 2021.

The credit distribution of the industry’s high-yield exposure is skewed toward the higher quality end of below investment grade credits, with 61% of the industry’s exposure at year-end 2021 to bonds with NAIC 3 designations.

High-yield exposure, in terms of book/adjusted carrying value (BACV) and as a percentage of total bonds, increased in 2021 compared to the prior year at all insurer types except life
insurance companies.

Material declines in high-yield corporate bond and leveraged loan issuance in 2022 reflect
investor risk aversion in a rising rate environment and pose significant financing challenges.

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