Insurers purchased 6.7 percent of loans sold to institutional investors in the second quarter, up from 1.9 percent in 2008, according to S&P LCD. Those figures may understate the companies' investments in the asset class because they don't include funds managed for insurers by outside firms.
The notional volume of the Standard & Poor's/LSTA Loan index was $519 billion in August, down 12.6 percent from 2008 when it was $594 billion, according to a report by New York- based CreditSights.
Collateralized loan obligations, which pool leveraged loans and slice them into securities of varying risk and return, once dominated the primary institutional loan market. Their share has contracted along with the decline in volume. CLOs comprised 41.5 percent of the market in the second quarter this year, down from 52.2 percent in 2008 and 66.7 percent in 2002, according to S&P LCD.
The total return on the S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first- lien leveraged loans, was down 2.4 percent this year through yesterday. It declined 4.9 percent in August, the biggest monthly slide since November 2008. U.S. high-yield bonds have lost 0.14 percent this year, according to Bank of America Merrill Lynch index data. The debt lost 4 percent in August.
The insurance industry's investment in loans won't happen immediately, said BlackRock's Hart.
Insurers are "a very deliberate investor class," he said. "This is pragmatic, step-by-step thoughtfulness. It won't be a flood, but rather a consistent stream."