Michael Lewis’ “Moneyball” highlights Billy Beane’s impact on professional baseball, using data to prioritize baserunners instead of flashy home-run hitters. By leading the Oakland A’s to the playoffs without a big-market budget, Lewis asks “How can you not be romantic about baseball?”
If I offered all 30 MLB managers guaranteed playoff success in 2030 and beyond, my guess is every skipper would sign on the dotted line – even if it required a few unpopular roster moves today. The insurance investment equivalent may be accepting capital losses today to improve long-term surplus.
Below, we address an industry dilemma absent in recent years. Presented with higher Treasury rates, insurance investors win by maximizing the deployment of existing portfolio assets into higher-yielding opportunities that sustain book yield growth. We believe selling certain bonds at statutory losses can increase this deployment without elevating credit credit risk or injecting fresh capital. “How can you not be romantic about bond losses?”
“Walk Me Through the Board”
At first glance, statutory accounting can make it appear that bonds trading below book price have performed poorly. The economic story often differs. Bonds can still hold unrealized statutory losses after exhibiting positive performance. This can happen when the risk premium, or spread, over the risk-free rate falls.
A changing economic landscape overshadowed positive performance on bonds purchased before the Fed hiked rates in 2022. Although these bonds remain fundamentally strong, their low book yields constrain future statutory income. Exhibit A shows that more than 10% of industry-held bonds have statutory book yields of 3% or less.1
Exhibit A: Industry Book Yield Distribution – December 2025
This is where entities can repurpose assets on the balance sheet. Like Brad Pitt’s character met payroll restraints with Peter Brand’s analytical approach, certain bonds may be more accretive to capital if they are sold. Still, many insurers do not want to realize statutory losses because doing so would reduce current-period net income. As a result, they capture the benefit of higher rates only gradually through reinvestment of principal and interest.
Raising book yield can lock in higher income for years, even when adjusting for a near-term reduction in book value. If interest rates remain “higher for longer,” AAM believes today’s market backdrop could help insurers accelerate core earnings growth. Nearly 40% of P&C filers reported that earned investment income contributed more to net income in 2025 than in 2024.1
“Find Players With the Money That We Do Have”
Historically rich credit valuations are creating opportunities for insurers to realize losses in ways that can be accretive to capital. As insurers shift toward new asset classes, traditional markets such as corporate and municipal bonds offer less compensation for risk. Exhibit B measures spreads relative to U.S. Treasuries, showing these sectors near all-time expensive levels.2
Exhibit B: Historical Spreads in the Investment-Grade Bond Universe
Spreads shown in basis points and reference monthly option-adjusted spreads from July 2006 through June 2026 unless noted below: *Spread shown is floating spread of JPM US CLOIE AAA Index **Data based on nominal spread of current coupon Fannie Mae/Freddy Mac 30-year mortgage bonds relative to average 5/10-year treasury yield ***Data based on quarterly nominal spread of ACLI fixed rate mortgage loans through March 2026
In today’s rich credit market, holding overvalued bonds may leave insurers with limited upside from further spread tightening and greater downside risk if spreads widen. Just like lineups change when a new pitcher takes the mound, asset managers should optimize investments as credit risk evolves. Accounting nuances may complicate decisions, but it does not mean the lineup should never change.
“We’ve Got to Think Differently”
All losses are not created equal – the same bond’s unrealized loss can vary by purchase date across statutory financials. “Payback period” measures how long is necessary for income earned on an investment to outpace losses realized to fund the position. Longer payback periods dampen the income benefits experienced, while poorly designed swaps can cost a company income.
Beyond their long-term book value impact, trades must result in positions that fit the broader portfolio. In an industry increasingly backing policyholder contracts with private credit and data center-linked debt, adding yield with bond swaps cannot ignore risk and asset-liability management.
Since active portfolio trading may introduce risk and accounting questions from firm stakeholders, asset managers cannot execute these strategies in a vacuum. Company management must factor in underwriting expectations, tax implications, capital efficiency and shareholder goals. A tailored checklist can gauge whether an entity is positioned to execute trades without damaging competing priorities:
Exhibit C: Realized Loss Checklist Example
If management can answer these questions confidently, they should “call everyone to the mound” to discuss a realized loss budget. Addressing the conversation during broader budget planning ensures potential losses permitted are aligned relative to enterprise income expectations.
Company leadership may grant loss allowances by period (ex: $100,000 per quarter) or require trade-by-trade approval. By establishing guardrails beforehand, firms avoid unnecessary budget variance in the form of excessive turnover or transaction costs. Moreover, the right investment advisor will be selective in how each trade affects the portfolio and income statement.
Rethinking Investment Budgeting
Insurance leadership often pull many levers to grow their bottom line. By partnering with an asset manager today, companies can boost book yield and long-term core earnings growth. Not only will this separate firms from peers, but it can also provide flexibility to other parts of the business.
Sources
1 S&P Capital IQ
2 Source: Bloomberg/JP Morgan/American Council of Life Insurers (“ACLI”)
Disclaimer: Asset Allocation & Management Company, LLC (AAM) is an investment adviser registered with the Securities and Exchange Commission, specializing in fixed-income asset management services for insurance companies. Registration does not imply a certain level of skill or training. This information was developed using publicly available information, internally developed data and outside sources believed to be reliable. While all reasonable care has been taken to ensure that the facts stated and the opinions given are accurate, complete and reasonable, liability is expressly disclaimed by AAM and any affiliates (collectively known as “AAM”), and their representative officers and employees. This report has been prepared for informational purposes only and does not purport to represent a complete analysis of any security, company or industry discussed. Any opinions and/or recommendations expressed are subject to change without notice and should be considered only as part of a diversified portfolio. Any opinions and statements contained herein of financial market trends based on market conditions constitute our judgment. This material may contain projections or other forward-looking statements regarding future events, targets, or expectations, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved and may be significantly different than that discussed here. The information presented, including any statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Although the assumptions underlying the forward-looking statements that may be contained herein are believed to be reasonable, they can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. AAM assumes no duty to provide updates to any analysis contained herein. Past performance is not an indication of future returns. This information is distributed to recipients including AAM, any of which may have acted on the basis of the information or may have an ownership interest in securities to which the information relates. It may also be distributed to clients of AAM, as well as to other recipients with whom no such client relationship exists. Providing this information does not, in and of itself, constitute a recommendation by AAM, nor does it imply that the purchase or sale of any security is suitable for the recipient. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, inflation, liquidity, valuation, volatility, prepayment, and extension. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
Budgeting Losses Can Buy Wins: “Moneyball” for Insurance Investing
September 21, 2026
Michael Lewis’ “Moneyball” highlights Billy Beane’s impact on professional baseball, using data to prioritize baserunners instead of flashy home-run hitters. By leading the Oakland A’s to the playoffs without a big-market budget, Lewis asks “How can you not be romantic about baseball?”
If I offered all 30 MLB managers guaranteed playoff success in 2030 and beyond, my guess is every skipper would sign on the dotted line – even if it required a few unpopular roster moves today. The insurance investment equivalent may be accepting capital losses today to improve long-term surplus.
Below, we address an industry dilemma absent in recent years. Presented with higher Treasury rates, insurance investors win by maximizing the deployment of existing portfolio assets into higher-yielding opportunities that sustain book yield growth. We believe selling certain bonds at statutory losses can increase this deployment without elevating credit credit risk or injecting fresh capital. “How can you not be romantic about bond losses?”
“Walk Me Through the Board”
At first glance, statutory accounting can make it appear that bonds trading below book price have performed poorly. The economic story often differs. Bonds can still hold unrealized statutory losses after exhibiting positive performance. This can happen when the risk premium, or spread, over the risk-free rate falls.
A changing economic landscape overshadowed positive performance on bonds purchased before the Fed hiked rates in 2022. Although these bonds remain fundamentally strong, their low book yields constrain future statutory income. Exhibit A shows that more than 10% of industry-held bonds have statutory book yields of 3% or less.1
Exhibit A: Industry Book Yield Distribution – December 2025
This is where entities can repurpose assets on the balance sheet. Like Brad Pitt’s character met payroll restraints with Peter Brand’s analytical approach, certain bonds may be more accretive to capital if they are sold. Still, many insurers do not want to realize statutory losses because doing so would reduce current-period net income. As a result, they capture the benefit of higher rates only gradually through reinvestment of principal and interest.
Raising book yield can lock in higher income for years, even when adjusting for a near-term reduction in book value. If interest rates remain “higher for longer,” AAM believes today’s market backdrop could help insurers accelerate core earnings growth. Nearly 40% of P&C filers reported that earned investment income contributed more to net income in 2025 than in 2024.1
“Find Players With the Money That We Do Have”
Historically rich credit valuations are creating opportunities for insurers to realize losses in ways that can be accretive to capital. As insurers shift toward new asset classes, traditional markets such as corporate and municipal bonds offer less compensation for risk. Exhibit B measures spreads relative to U.S. Treasuries, showing these sectors near all-time expensive levels.2
Exhibit B: Historical Spreads in the Investment-Grade Bond Universe
Spreads shown in basis points and reference monthly option-adjusted spreads from July 2006 through June 2026 unless noted below:
*Spread shown is floating spread of JPM US CLOIE AAA Index
**Data based on nominal spread of current coupon Fannie Mae/Freddy Mac 30-year mortgage bonds relative to average 5/10-year treasury yield
***Data based on quarterly nominal spread of ACLI fixed rate mortgage loans through March 2026
In today’s rich credit market, holding overvalued bonds may leave insurers with limited upside from further spread tightening and greater downside risk if spreads widen. Just like lineups change when a new pitcher takes the mound, asset managers should optimize investments as credit risk evolves. Accounting nuances may complicate decisions, but it does not mean the lineup should never change.
“We’ve Got to Think Differently”
All losses are not created equal – the same bond’s unrealized loss can vary by purchase date across statutory financials. “Payback period” measures how long is necessary for income earned on an investment to outpace losses realized to fund the position. Longer payback periods dampen the income benefits experienced, while poorly designed swaps can cost a company income.
Beyond their long-term book value impact, trades must result in positions that fit the broader portfolio. In an industry increasingly backing policyholder contracts with private credit and data center-linked debt, adding yield with bond swaps cannot ignore risk and asset-liability management.
Since active portfolio trading may introduce risk and accounting questions from firm stakeholders, asset managers cannot execute these strategies in a vacuum. Company management must factor in underwriting expectations, tax implications, capital efficiency and shareholder goals. A tailored checklist can gauge whether an entity is positioned to execute trades without damaging competing priorities:
Exhibit C: Realized Loss Checklist Example
If management can answer these questions confidently, they should “call everyone to the mound” to discuss a realized loss budget. Addressing the conversation during broader budget planning ensures potential losses permitted are aligned relative to enterprise income expectations.
Company leadership may grant loss allowances by period (ex: $100,000 per quarter) or require trade-by-trade approval. By establishing guardrails beforehand, firms avoid unnecessary budget variance in the form of excessive turnover or transaction costs. Moreover, the right investment advisor will be selective in how each trade affects the portfolio and income statement.
Rethinking Investment Budgeting
Insurance leadership often pull many levers to grow their bottom line. By partnering with an asset manager today, companies can boost book yield and long-term core earnings growth. Not only will this separate firms from peers, but it can also provide flexibility to other parts of the business.
Sources
1 S&P Capital IQ
2 Source: Bloomberg/JP Morgan/American Council of Life Insurers (“ACLI”)
Disclaimer: Asset Allocation & Management Company, LLC (AAM) is an investment adviser registered with the Securities and Exchange Commission, specializing in fixed-income asset management services for insurance companies. Registration does not imply a certain level of skill or training. This information was developed using publicly available information, internally developed data and outside sources believed to be reliable. While all reasonable care has been taken to ensure that the facts stated and the opinions given are accurate, complete and reasonable, liability is expressly disclaimed by AAM and any affiliates (collectively known as “AAM”), and their representative officers and employees. This report has been prepared for informational purposes only and does not purport to represent a complete analysis of any security, company or industry discussed. Any opinions and/or recommendations expressed are subject to change without notice and should be considered only as part of a diversified portfolio. Any opinions and statements contained herein of financial market trends based on market conditions constitute our judgment. This material may contain projections or other forward-looking statements regarding future events, targets, or expectations, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved and may be significantly different than that discussed here. The information presented, including any statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Although the assumptions underlying the forward-looking statements that may be contained herein are believed to be reasonable, they can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. AAM assumes no duty to provide updates to any analysis contained herein. Past performance is not an indication of future returns. This information is distributed to recipients including AAM, any of which may have acted on the basis of the information or may have an ownership interest in securities to which the information relates. It may also be distributed to clients of AAM, as well as to other recipients with whom no such client relationship exists. Providing this information does not, in and of itself, constitute a recommendation by AAM, nor does it imply that the purchase or sale of any security is suitable for the recipient. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, inflation, liquidity, valuation, volatility, prepayment, and extension. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
In this post
Matthew Williams, CFA
Assistant Portfolio Manager
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