Significant Increase in Privately Placed Bonds within U.S. Life Insurers
The concentration of privately placed bonds within U.S. life insurers' portfolios has reached a significant level, prompting the National Association of Insurance Commissioners (NAIC) to revamp its approach to monitoring investment risk. As of the end of 2025, such bonds accounted for 48.4% of the total bond holdings within the life insurance sector, marking an increase from 37.4% over the past five years, according to the S&P Global Market Intelligence 2026 U.S. Insurance Investments Market Report. This trend aligns with a broader industry shift over the past decade, where the overall proportion of bonds among life insurer assets has decreased by approximately seven percentage points since 2015.
The NAIC has responded by implementing the Principles-Based Bond Definition starting January 1, 2025. This policy change necessitates that insurers categorize assets based on their economic essence instead of their legal structure, aiming to ensure that structured investments do not improperly benefit from bond capital treatment.
The policy adjustment had varied impacts across the sector. Life insurance general accounts saw a transfer of nearly $15.40 billion in assets from Schedule D, Part 1 to other investment schedules. Notably, Lincoln National Corp. was responsible for over 25% of these transfers. Similarly, about 650 bonds valued at $1.81 billion within the property and casualty (P&C) segment were moved to other classifications.
In 2025, life insurers recorded a decrease in bond allocations within their portfolios to 66.8% from the previous 67.4% as they explored higher-yielding investment options. NAIC's redesigned Schedule D divides the nearly $4 trillion life general account bond book into issuer credit obligations and asset-backed securities, which are split at 72.8% and 27.2% respectively. Corporate bonds form a large part of issuer credit obligations at 74.1%.
Regulatory Oversight and Risk Management
NAIC President Scott White emphasized that maintaining transparency in life insurers' portfolio management is a crucial regulatory focus for 2026. He highlighted the need for regulators to monitor insurers that are reallocating assets into complex, less liquid alternatives or operating within offshore jurisdictions that have distinct regulatory requirements.
In a related development, Carrie Mears from the Iowa Department of Insurance and Financial Services noted that the newly established commissioner-level Invested Assets Task Force is expected to enhance oversight adaptability and responsiveness. Mears pointed out that regulators are keenly observing the growth in residential mortgage loans, as this asset category has expanded more than initially anticipated.
The P&C sector experienced a decrease in bond allocations by 88 basis points to 68.6% in 2025, with common equities rising to a four-year high of 16.2% of total assets, while Schedule BA assets hit a record 7.1%. The report from S&P Global explains that this moderate transition is attributed to the P&C segment’s shorter liability durations and greater liquidity demands.
For insurance brokers, these findings highlight a pattern seen in various reports throughout the year: life and annuity product portfolios increasingly comprise assets that pose liquidity and pricing challenges. S&P Global identifies the core risks in the current management strategies as liquidity constraints, complexity, and an uptick in regulatory oversight. It suggests that asking insurers detailed questions about the makeup of backing portfolios for long-term guarantee products can be revealing. Carriers that cannot provide specifics on the proportion of privately placed or Schedule BA assets represent a risk indicator when compared to those that can offer detailed insights.