We perform microeconomic level analysis on the preferred-habitat behavior in the government bond portfolios of insurance firms, a major group of bond market investors. Insurers' aggregate government bond portfolios have stable exposure to interest rate factors and limited sensitivity to term structure changes. Individual insurers' portfolio risk exposures are also stable yet widely dispersed, suggesting large heterogeneity in the habitat preference across insurers. To understand such patterns we consider two forms of habitat behavior that are nested in a rational dynamic portfolio model----a liability habitat driven by the need to immunize the interest rate risk of liability, and a horizon habitat due to the preference for holding securities with riskfree returns at the investment horizon. Consistent with the liability habitat effect, we find that insurers' portfolio risk exposures are strongly related to their liability characteristics, including the level and maturity of claim liabilities. Liability concerns also dampen portfolio response to term structure changes. The evidence on the horizon habitat is somewhat mixed; and if any, it suggests that insurers' investment horizons tend to be relatively short.