Life Insurance Companies as Investment Managers

This paper examines the attractiveness of the equity portfolios of life insurance companies as an alternative investment to mutual funds. In particular, this study analyzes the risk- adjusted investment performance of the stock portfolios of ltfe insurance companies, attributable to their stock selection and market timing abilities. Using conventional measures of risk-adjusted portfolio performance, we find that ltfe insurance companies exhibit performance similar to mutualfunds. The evidence suggests that the ltfe insurance companies, like their mutual fund counterparts, fail to exhibit differential stock selection or market timing abilities that are statistically significant. While the risk-adjusted investment performance of the two investment vehicles is similar, the variable annuity contracts of life insurance companies may offer an edge over mutualfunds due to their ability to defer taxes.