This section presents the investment performance of insurers in 2023. It first looks at their asset allocation and then at the rates of return.
Global Insurance Market Trends 2024
Abstract
Bonds accounted for over half of the assets of insurers at end-2023. While asset allocations varied across jurisdictions, life and composite insurers tend to invest the most in fixed-income securities, with a view to matching their long-term liabilities (for life insurance business) and having a stable and regular source of income (Figure 4.1).1 Insurers generally held more government bonds than corporate bonds, with some exceptions (e.g. France, Chinese Taipei, Switzerland).2 The higher interest rates in comparison with previous years led some insurers to increase their exposure to bonds to benefit from higher expected future returns, such as in Bulgaria (life insurers), Colombia, Estonia (life insurers), and Peru. In Colombia, life insurers increased their investments in domestic inflation-indexed government bonds in order to protect their portfolios against inflation, as their payments increase with inflation and rises in the minimum wage.
As a percentage of total investment
Note: Data exclude assets linked to unit-linked products where risk is fully borne by policyholders. The “Others” category includes investments in loans, private equity funds, hedge funds, structured products and other investments. Negative values in some categories for some jurisdictions were excluded from the calculations of the asset allocation.
Source: OECD Global Insurance Statistics.
While equities accounted for a lower proportion of the investments of insurers, insurers in some jurisdictions still held a significant share of assets in equities. Those with the highest proportion of assets in equities at end-2023 included life insurers in Denmark and Sweden and non-life insurers in Austria, with more than 40% of assets in equities.3 Non-life insurers held also a relatively high proportion of assets in equities in France (30%), Japan (30%) and the United States (26%).
All insurers also held a portion of their assets in cash and deposits, which are liquid assets. Non-life insurers tend to hold a larger proportion of assets in cash and deposits as they need liquid instruments to meet claims requests. Deposits may have become more attractive due to the higher investment returns they can provide in a context of higher interest rates. Some insurers increased their holdings of cash and deposits when they had, or were expecting to have, more liquidity needs (e.g. life insurers in France, non-life insurers in Slovenia). In France, life insurers slightly increased their cash position to be able to pay for policy surrenders, in order to avoid having to sell undervalued bonds and crystalise losses. In Slovenia, non-life insurers significantly increased their holdings of cash and deposits (by nine percentage points) due to the reform of private health insurance.
Insurers also invested in instruments or vehicles other than bonds, equities and cash and deposits. These alternative investments include for instance land and buildings. For example, the proportion of assets in land and building was relatively high for life insurers in Switzerland (16% of assets) and Norway (10%). Finland reported that real estate investments accounted for 14% of assets of non-life insurers. The relatively high proportion of assets in alternative investments in some jurisdictions may reflect the search for yield by insurers and less liquid investments in a low interest rate environment. Despite interest rates being higher, life insurers continued to invest in private markets to some extent in order to diversify and enhance returns (BIS, 2024[21]).
The investment performance of insurers improved in 2023. Insurers achieved a positive real investment rate of return in 23 out 35 jurisdictions (66%) for insurers operating in the life sector only, 23 out 38 (61%) for those operating in the non-life sector, and 16 out of 25 (64%) for those operating in both sectors (Figure 4.2). This contrasts with 2022 when the insurance industry experienced negative real investment rates of return in nearly all jurisdictions (Annex A). In 2023, insurers in Poland and Peru recorded the strongest investment performance in the non-life insurance sector, with real investment rates of return above 10%. Nearly all the jurisdictions with a negative investment rate of return for the industry in 2023 in real terms (e.g. Egypt, Türkiye) had a positive investment rate of return in nominal terms.4
In per cent
Note: Average annual real net investment rates of return are calculated based on the nominal annual net investment rates of return reported by jurisdictions for 2023 and the variation of the consumer price index over the same period. The investment rates of return of insurers operating in the life insurance section may cover unit-linked products in some cases.
Source: OECD Global Insurance Statistics.
The positive investment performance of insurers in 2023 was mainly the result of the decline in government bond yields toward the end of 2023 and rising equity valuations. While the yields on long-term government bonds increased and peaked in October 2023 in major advanced economies, they declined in the last quarter of 2023 as investors expected interest rate cuts (BIS, 2024[22]; IMF, 2024[23]). They also fell at the end of 2023 in emerging market economies (BIS, 2024[22]). This decline enabled insurers to record gains in their bond holdings where valued on a mark-to-market basis. Insurers also benefitted from positive developments in equity markets worldwide, with the MSCI World Index for instance rising by 20% in 2023.5 Some of the jurisdictions where the highest investment rates of return were registered also had a higher proportion of assets allocated to equities, as was the case for non-life insurers in Poland and Peru.
Despite gains on bond and equities, insurers may have faced losses in other asset classes, such as real estate, or due to hedging strategies. For example, in Finland, the downturn in the real estate market in 2023 led to losses in the real estate investments of non-life insurers. In Chinese Taipei, insurers faced higher hedging costs when interest rates were on the rise, lowering investment returns.
The recent implementation of new accounting standards (e.g. IFRS 9 for financial instruments) affected the measurement of investment performance in some jurisdictions. For instance, in Norway, following the adoption of IFRS 9 in 2023, the proportion of assets measured at fair value increased while the proportion held at amortised cost declined.
← 2. In Chinese Taipei, insurers also invest largely in corporate and financial sector bonds, available in high volumes and with a long-term horizon.
← 3. In Austria, most of the equity investments of non-life insurers are participations in other undertakings. These participations represent strategic holdings rather than speculative or high-risk assets.
← 4. The only exception is Slovenia where non-life insurers recorded a negative investment performance in nominal terms in 2023. This negative performance was due to the extraordinary sale of certain instruments that was necessary to increase capital and meet liquidity needs in the context of the reform of private health insurance in 2023.
← 5. MSCI all-country world stocks. See Markets in 2023: Soaring stocks and roaring bonds defy the doubters | Reuters