What Determines Private Debt Holdings for Life Insurers? a Longitudinal Investigation

A major investor in private debt market is life insurance companies. They have long-term, fixed-rate liabilities that are matched by private debt investment. Life insurance companies, as the lenders in the private debt market, have the ability to evaluate the credit quality of borrowers and to perform ongoing risk monitoring. In this study we examine the determinants of private debt holdings for life insurance companies. Using data of 667 life insurers’ history of private debt holdings from 2003 to 2007, we find that the private debt holdings for life insurer are strongly associated with their financial strength, organization form, regulation stringency, group affiliation, liquidity level and geographic market structure. Mutual insurers, insurers that have higher financial quality, that face stringent regulation, that are affiliated with groups, and those with less liquidity and less concentrated geographic market structure are more likely to be lenders in the private debt market. The results highlight the role of firm characteristics in life insurers’ private debt holdings.