Each week The NAIC’s Capital Markets Bureau monitors developments in the capital markets globally and analyzes their potential impact on the investment portfolios of US insurance companies.  A list of archived Capital Markets Bureau Special Reports is available via the index.

Analysis of Schedule BA: The Insurance Industry’s “Other Long-term Invested Assets”

The Capital Market Bureau’s Special Report dated as of Aug. 26, 2011, studied insurers’ investment allocations across all asset classes. As noted in that report, bonds dominate insurers’ $5 trillion investment portfolios with a 70% allocation, common stocks followed with 10.3% and direct mortgages were third at 6.4%. In fourth place, with a 4.5% allocation, was Schedule BA (or “other long-term invested assets”).

As the term “other” implies, Schedule BA embraces a heterogeneous group of investments. It includes private equity and hedge funds, mineral rights, aircraft leases, surplus notes, secured and unsecured loans to corporations and individuals, and housing tax credits.

At Dec. 31, 2010, insurers’ Schedule BA investments had an Actual Costi totaling $247.3 billion. Fair Value was $233.7 billion, or 94.5% of Actual Cost. Book/Adjusted Carrying Value (BACV) Less Encumbrances was $232.6 billionii, or 94% of cost. 

The total of the industry’s Current Year’s Other Than Temporary Impairment (OTTI) recognized for Schedule BA in 2010 was $3.2 billion or 1.36% of year-end BACV. The Unrealized Valuation Increase (Decrease) in 2010 was +$10.4 billion and the Current Year’s (Depreciation) or (Amortization)/Accretion was -$0.6 billion (a net depreciation or amortization). Investment Income in 2010 was +$10.0 billion.

The following table shows how Schedule BA investments have grown over time in terms of year-end cost, BACV and fair value (not reported in 2004). Adjacent columns show the year-to-year change and BACV or Fair Value as a percentage of Cost.

Graph 1

Embedded in the above are gains and losses, as well as acquisitions and sales. The following table shows reported figures for:

Other Than Temporary Impairment (OTTI)iii
Unrealized Valuation Increase (Decrease)
Increase (Decrease) by Adjustment
Foreign Exchange Adjustment
Invested Income

BACV is shown in the first column for comparison. OTTI (i.e., realized valuation increases and decreases) and Unrealized Valuation Increase (Decrease) were not reported prior to 2008 and reporting of Increase (Decrease) by Adjustment ceased.

Graph 2

The final column is calculatediv by dividing investment income by prior year-end BACV. Returns have been lower since 2008, averaging 6.8% over the past six years.v

The total Commitment for Additional Investment at year-end 2010 was $37.5 billion. This commitment ‘overhang’ is an investor’s contractual obligation to contribute additional capital to the fund when called for “drawn down” by the general partner.vi This amount would increase Schedule BA’s BACV by 16.1% if fully drawn at the end of 2010 however drawdowns usually occur over a few years, depending on investment opportunities. Such commitments are usually associated with private equity funds, a small subset of Schedule BA.

Industry Overview

Of the nearly 4,500 insurance companies reporting investment data to the NAIC about a fourth of them, or 1,163 companies, reported Schedule BA investments in 2010. Out of 368 groups reporting Schedule BA assets, the top 10 insurance groups or holding companies account for 62.7% of all Schedule BA holdings; the top 25 account for 80%. As one would expect, the list is dominated by the largest insurance groups. Berkshire Hathaway, at $54.5 billion, accounts for nearly a quarter (23.4%) of the entire industry’s $232.6 billion in Schedule BA assets. The three next largest groups account for 7.7%, 7.4% and 5.8% of all Schedule BA assets, with the rest holding less than 5% each.

In terms of domiciliary jurisdictions, the top 10 states account for over 80% of Schedule BA holdings.

Graph 3

The next table shows Schedule BA allocations by type of insurance company (“industry”) and whether the investment is reported as “affiliated.”

Graph 4

While life and property/casualty companies hold similar totals ($115 billion vs. $110 billion), the life sector’s holdings are predominately unaffiliated (65%) whereas the P/C sector’s holdings are mostly affiliated (60%).

Categories and Components of Schedule BA

As already noted, Schedule BA embraces a wide range of asset types, both affiliated and unaffiliated. The 2010 annual statement instructions (Page 351) list 42 subtotals or classifications. They are listed below, in the order of Schedule BA line numbers (not shown).

Categories or Subcategories of Schedule BA Investments:

      1. Oil and Gas Production
      2. Transportation Equipment
      3. Mineral Rights
      4. Fixed or Variable Interest Rate Investments That Have the Underlying Characteristics of:
          1. Bonds
          2. Mortgage Loans
          3. Other Fixed Income Instruments
      5. Joint Venture, Partnership or Limited Liability Company Interests that have the Underlying Characteristics of:
          1. Fixed Income Instruments
          2. Common Stocks
          3. Real Estate
          4. Other
      6. Surplus Debentures, etc.
      7. Collateral Loans
      8. Non-collateral Loans
      9. Capital Notes
      10. Guaranteed Federal Low Income Housing Tax Credit
      11. Non-Guaranteed Federal Low Income Housing Tax Credit
      12. State Low Income Housing Tax Credit
      13. All Other Low Income Housing Tax Credit
      14.  Any Other Class of Assets

Each of the above 21 categories and subcategories also has a separate subtotal for “Affiliated” and “Unaffiliated,” making for 42 subtotals in Schedule BA. For this report, we have simplified the above taxonomy by putting similar types of assets together; for example, combining “Surplus Debentures” and “Capital Notes” into “Capital & Surplus Notes”. The adjusted and original categories (as annotated above) are shown below.

      Adjusted Categories                      Original Categories

  1. JV, Partnership, LLC                           v, a – d           
  2. Any Other Asset Class                       xiv
  3. Fixed or Var Rate Invest                      iv, a - c
  4. Capital & Surplus Notes                      vi & ix
  5. Non & Collateral Loans                       vii & viii
  6. Housing Tax Credits                           x, xi, xii, xiii
  7. Transportation Equip                           ii
  8. Mineral Oil Gas                                  i & iii

Thus re-aggregated and abbreviated, 2010’s Sch. BA concentrations by category, insurer type, and whether or not affiliated, are shown in the following two tables.  (Note: tables are generally sorted largest to smallest, both by row and column.)

Graph 5

Graph 6

The next graph shows the “vintage” of the industry’s 2010 Schedule BA holdings by category (excluding $8.2 billion of undated and pre-1997 investments).

Graph 7

Nearly a quarter of Schedule BA assets were acquired in 2010, but this includes Berkshire Hathaway’s $35.5 billion acquisition of the balance of Burlington Northern in February 2010 (in the JV Partnership LLC category).

Private Equity and Hedge Funds

In the appropriate categories within Schedule BA, insurers are required to identify any private equity or hedge fund investments and categorize them by identifying those having the “underlying characteristics of” equities, bonds, mortgages, real estate or “other,” and designate each fund’s investment strategy. These “character” and “strategy” identifications cover $61.6 billion (or 26.5%) of all Schedule BA investments and are shown in the following table.vii

Graph 8

The majority of these investments, $44.9 billion or 73%, have the underlying characteristic of equity, and private equity strategies dominate hedge funds with $48.3 billion (or 78%) of the $61.6 billion of identified private equity and hedge fund investments.

The next table shows how different types of insurers allocated among strategies in 2010.

Graph 9

Life companies account for just more than two-thirds of insurers’ alternative investments, at $41.4 billion (or 67%) of the $61.6 billion, with a strong preference for private equity strategies (84%). Fraternals were the most concentrated in private equity (98%). Property/casualty companies had the highest allocation to hedge fund strategies but still strongly favor private equity (64%).

The following table shows how insurers’ allocation among various alternative strategies has changed since strategy disclosures began in 2005 (sorted by 2010 BACV).

Graph 10

The next table shows various reported performance measures by strategy. The data below includes 2004 in order to maintain comparability among tables. Not every measure was reported in every year, which means that “Incr/Decr by Adjustment” reflects 2004 – 2007 market conditions and OTTI and Unrealized Value Incr/Decr reflects 2008 – 2010 conditions. The strategies remain sorted by their 2010 BACV, as above.

Graph 11

The next table adds up the various adjustments above.

Graph 12

Over the years, OTTI and the other adjustments are a net positive, except for three strategies, and investment income has been substantially in excess of all adjustments.


Insurers’ Schedule BA investments contain a highly diverse group of investments where the idiosyncratic dominates. Schedule BA investments have more than doubled since 2004, with unfunded commitments making further increases likely.

Although significant in dollar terms, at $61.6 billion, “alternative” private equity and hedge fund investments are only a fourth of Schedule BA BACV. These investments have fluctuated in value over this period but remain a net positive, especially after adding in investment income. Life companies account for almost half of Schedule BA investments; however, Berkshire Hathaway by itself accounts for nearly a fourth. Affiliated investments account for just more than half of Schedule BA. While comprising less than 5% of the industry’s cash and invested assets, Schedule BA contains some of the industry’s largest single investments, even excluding Berkshire.viii 

In a future report, we may examine some of these categories in greater depth or see how allocations (and performance) among the categories have changed over time.

Graph 13

Graph 14

Graph 15

Questions and comments are always welcome. Please contact the Capital Markets Bureau at CapitalMarkets@naic.org.


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