A Multivariate Analysis of the Composition of Life Insurer Balance Sheets

A basic economic decision confronting a life insurer is the mixture of assets to buy and liabilities to sell. The asset and liability structures of life insurers involve interactions among their assets, among their liabilities, and between their assets and liabilities, as well as many regulations and institutional constraints unique to the life insurance industry. The purpose of this paper is, by using canonical correlation analysis, to examine empirical relationships between the structure of the assets and obligations of life insurers. Several significant cross-balance sheet relationships are found for a cross-section of 194 large life insurers.