The Value of Value Investors

We examine the role of insurance companies as value investors in the corporate bond market. We show that during the COVID-19 liquidity crisis, insurers acted as “buyers of last resort” and increased their corporate bond positions, particularly in bonds facing fire sales by mutual funds. Insurers with more stable insurance funding were more likely to buy, and they bought more from dealers with whom they had prior trading relationships. We find that the stability of the insurance funding of insurers plays an important role for the liquidity conditions in the corporate bond market. Dealers improve their liquidity provision when they have trading relationships with insurers with more stable insurance funding. Our work demonstrates the value of value investors during times of stress.