A few years ago, we stopped regularly updating various analyses of the insurance industry. This naturally raised questions. What was the reason for our decision to end this practice? Was there a specific goal we were pursuing by ignoring it? Perhaps the data no longer supported our claim that it’s a strong industry capable of protecting your retirement savings.

The real answer… we got bored.

Life insurance is kind of boring.

Insurance companies are boring. They don’t often fluctuate this much. While the analysis was interesting the first time around, it remained largely unchanged from year to year. At some point, we forgot to update it. And after that oversight, we focused on more exciting things.

Given the long time since our last analysis, things have certainly changed enough that we have something noteworthy to report. To this end, I re-searched the insurance accounting report database and compiled a five-year general account return analysis for the end of 2023—the last year for which we have full-year data.

Why five years? Because it always seemed to be the optimal period, providing enough time to draw reasonable conclusions about the trend without overemphasizing talents or circumstances that likely no longer exist or no longer impact the overall result.

And why are we focusing on the general account return and its development over time? Because investment gains typically play a significant role in dividend distributions to life insurance policyholders. Therefore, those who embrace life insurance in this sense and purchase this strategy as an option for their retirement portfolio are relying on the insurance company’s capabilities as a wealth manager. The insurance company’s ability to generate returns on assets under management is extremely remarkable, since we entrust it with the task of taking our money and turning it into more money. The return achieved plays a major role.

Five-Year General Account Return Trend 2023

Here is a table summarizing the results of ten mutual (or predominantly mutual) life insurers that have a reputation for focusing on the entire life insurance industry—or at least have until recently:

Anyone familiar with numbers will notice that, statistically, seven of the ten companies are practically tied for first place. With fluctuations between 0.03% and -0.025%, they are all closer to zero than half a tenth of a percent of year-on-year change.

Even the bottom three remain fairly close to zero—although their results are somewhat more remarkable in terms of a discernible trend for the five-year period. They range from almost one-eighth of a percent to just under one-fifth of a percent year-on-year. As soon as we see movements in the tenths of a percent range, we usually take notice.

Not much has changed with whole life insurance

The trend in this analysis is similar to what we observed a few years ago when we last addressed this topic. Mutual life insurers continue to pursue their steady-as-you-go approach, and any discernible change can only be measured in microscopic terms. I argue that this truly benefits the philosophical appeal of whole life insurance.

Whole life insurance provides an excellent buffer against volatility. Its unspectacular features allow for a gradual—and guaranteed—increase in value while promising that downsides are impossible. Successfully implementing this with a meaningful return requires a standard procedure that can only be described as unspectacular. And therein lies the magic—subtle, I must confess.

Whole life insurance offers unparalleled downside protection while generating attractive returns. While it will never compete with more volatile options like stocks, it won’t let you down in a recession. Their risk-adjusted return is an outstanding performance in the market for investments you can choose for wealth accumulation and retirement planning. The fact that these insurance companies have achieved little change in the returns on their investments over the past five years underscores the inherent security of whole life insurance.

But why not even more increases, given rising interest rates?

Slowly rising, slowly falling

First, consider that this five-year period covers the years 2019 to 2023. Interest rate increases only began to gain momentum in the second half of 2022. Most of this period encompasses a significantly lower interest rate environment than current interest rates.

Added to this, however, is that life insurers tend to be slow to react to interest rate changes. That is not their intention.

Life insurers buy bonds and collect the returns on those bonds. They do not trade them. The purpose of buying bonds is to generate income to cover a liability. In the case of a life insurance contract, these are the guarantees the insurer provides to the insured. The difference between the income generated and the coverage of the liability is a profit, which plays a large role in dividend payments to policyholders (which is why we track yield in the first place). However, once bonds are purchased, the yield remains for some time.

These life insurers therefore own many bonds with yields well below current market interest rates. This can be seen because the book value of all bonds is higher than the market value of their bond holdings. As insurers collect more premiums and sell maturing bonds, they will begin to buy new bonds at current market interest rates. Given enough time and interest rates rising, this will lead to a gradual increase in the yield of the entire bond portfolio – however, this is a slow process.

The opposite is also true. When interest rates first fell sharply after the 2008 recession, life insurers continued to pay dividends above comparable market interest rates. The life insurers were able to do this easily because they held many bonds with yields well above the market interest rates at the time. As they collected new premiums and reduced maturing positions and invested in new bonds, the yield they earned on new bonds decreased. This ultimately led to a decline in dividends—albeit a very slow one—over a period of more than 10 years. We can’t say that the increase will follow exactly the same trajectory now that interest rates are higher. But we do know that there will be similarities in the trend.