Net investment income among U.S. heath insurance companies grew by approximately 33% in 2023 to $10.7 billion, aided by the strong growth in invested assets driven by higher premiums, as well as the positive impact of higher interest rates on newly invested assets, according to a new AM Best report.

The Best’s Special Report, “US Health Insurer Investment Income Grew by 33% in 2023,” also states that higher interest rates helped push the gross portfolio yield to 3.33% in 2023 from 2.91% in the previous year, and 2.45% in 2021. Bond quality improved notably in 2023, with NAIC-1 rated bonds accounting for more than three quarters (76.9%) of the bond portfolio for the first time since 2019. Conversely, below investment-grade bonds dropped a full percentage point to 4.3% of bonds. Despite the upward shift in credit quality in 2023, allocations to NAIC-2 securities are still six percentage points higher than in 2014.

“Shifts within the fixed income portfolio, generally toward NAIC-2 securities, is reflective of the shifting investable universe of bonds toward NAIC-2 ratings,” said Jason Hopper, associate director, industry research and analytics, AM Best. “However, U.S. health carriers still have maintained consistently conservative asset allocations over the past decade to support insurance liabilities, with minimal changes across the broad asset classes.”

According to the report, health insurers have been steadily reducing their allocation to common stocks, accounting for less than 15% of invested assets in 2023, compared with more than 18% in 2014. At the same time, BA asset allocations have risen modestly in recent years, with more than half in 2023 affiliated, largely driven by Blue Cross/Blue Shield companies and investments in health-related businesses.

“This tilt toward affiliated BA assets allowing the BCBS plans to leverage their resources while limiting the risk exposure that comes with direct ownership of non-insurance operations,” said John McGlynn, senior financial analyst, AM Best. “Larger Blue Cross/Blue Shield companies may provide services to other BCBS companies through joint ventures that appear in schedule BA.”

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=343037.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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