Here's What Life and Annuity Issuers Spend on Investment Costs
What You Need to Know
For investment-grade bond mutual funds, the average investment expense ratio is considerably higher.
A panel of insurance commissioners is gathering expense data to analyze insurer reserve adequacy.
Regulators say that insurers with more complex assets may need to spend more to understand the assets.
U.S. life insurance and annuity issuers have told state insurance regulators that they had an overall average portfolio investment expense assumption of 0.17% for new assets that they managed in 2022.
About 31% of the 197 insurers that provided overall expense data said they assumed that their overall portfolio investment expenses would amount to less than 0.1% of the assets managed, according to a presentation that Fred Andersen, the chief life actuary at the Minnesota Department of Commerce, prepared for a session last week at a meeting of the National Association of Insurance Commissioners.
About 7% of the insurers assumed that their expense ratio would be more than 0.4%.
U.S. life and annuity issuers typically put a large majority of their assets in investment-grade bonds and other investment-grade fixed income holdings. The average expense assumption for the insurers in the NAIC data compares with a simple average of 0.69% for the investment-grade bond mutual funds included in Investment Company Institute fund expense data.
What it means: An NAIC effort to monitor life and annuity issuers’ portfolios is producing a new stream of asset management expense-benchmarking data.
Managers of the program hope it will increase the odds that life insurers will have enough reserves to make good on benefits promises to clients in tough economic conditions.
One side effect may be that investment advisors will have new information they can use to assess the efficiency of their own asset management efforts and the efficiency of any outside money managers that they and their clients use.
The asset-tracking program: Federal law leaves regulation of the business of insurance to the states. The NAIC is a Kansas City, Missouri-based group that helps regulators in states and state-like jurisdictions do their jobs.
The Valuation Analysis Working Group, an arm of the NAIC, is in charge of implementing the NAIC’s new Actuarial Guideline LIII: Application of the Valuation Manual for Testing the Adequacy of Life Insurer Reserves, or AG 53, which was adopted in 2022.
The AG 53 team is supposed to gather life and annuity issuers’ investment assumption data and make sure that some issuers aren’t using unrealistic or extremely unusual assumptions about complex assets, reinsurance arrangements and other resources to design, price and administer their products.
