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Old 11-30-2017, 05:06 PM
royevans royevans is offline
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Default Why do life insurers invest premiums in treasury bonds?

I held an internship in a life company a few years ago and was always curious about why whole life and retirement products have cash accumulation accounts that are bench marked to market indexes, but the premiums arent invested in those indexes.

For example if you have a fixed indexed annuity, your account value may grow with the s&p500 with a participation rate of 70%. However, from my understanding, life insurers do not invest the incoming premiums into the s&p500. Instead they invest it in stable, high rated bonds and treasury bonds.

Is this solely due to the fact that it might be too risky too invest in the S&P in case of negative returns (and the fact that insurers have 0% guaranteed rates)?
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Old 11-30-2017, 05:13 PM
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Have you never heard of derivatives? Indexed products use those for hedging, rather than investing directly in the market.
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Old 11-30-2017, 05:56 PM
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Have you never heard of derivatives? Indexed products use those for hedging, rather than investing directly in the market.
oh, sorry
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Old 11-30-2017, 06:11 PM
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If you get a hold of a blue book (the annual statement), you want to check out Schedule DB for the companies with indexed products.

Remember indexed products tend to have a guaranteed portion (thus the fixed income investments), and you'll often see swaps and other derivatives to generate the indexed portion of benefits. I highly doubt any insurer goes bare those risks.

Well, now, at any rate.
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Old 11-30-2017, 06:15 PM
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If you get a hold of a blue book (the annual statement), you want to check out Schedule DB for the companies with indexed products.

Remember indexed products tend to have a guaranteed portion (thus the fixed income investments), and you'll often see swaps and other derivatives to generate the indexed portion of benefits. I highly doubt any insurer goes bare those risks.

Well, now, at any rate.
so in addition to hedging through derivatives, are premiums also invested in treasury bonds and high rated corporate bonds? If so, what is the average split?

Last edited by royevans; 11-30-2017 at 06:53 PM..
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Old 11-30-2017, 06:42 PM
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I'm sorry, but this actually impinges on my day job and a huge study I do each year.

(as in, my company charges for that information/analysis)
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Old 11-30-2017, 07:11 PM
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so in addition to hedging through derivatives, are premiums also invested in treasury bonds and high rated corporate bonds? If so, what is the average split?
Yes to the first question. What would you do with the answer to the second one, in case somebody was willing to figure it out for free?
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Old 11-30-2017, 07:41 PM
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so in addition to hedging through derivatives, are premiums also invested in treasury bonds and high rated corporate bonds? If so, what is the average split?
Companies tend to invest very little in treasuries. Mostly high quality corporates.
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Old 11-30-2017, 10:37 PM
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Why invest in treasuries?

They're usually available at a longer duration than high quality corporates.....
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