Life insurers increasing exposure to Triple-B corporate credit

“The insurance industry, including life insurers, needs to consider a more holistic approach to enhancing portfolio performance,” says Mike Haylon, Managing Director at Conning. “We strongly believe that companies that incorporate strategies involving diversification, expertise in alternative investing, and a comprehensive risk management approach can position themselves more strategically for growth in the current investment environment.

Conversely, over-concentration in certain investment strategies is likely to weaken the outcome,” he adds.

Among the study’s other key findings:

• 77 percent of surveyed CEOs say investment yield is critically important to maintaining profitability.

• More than 80 percent of CEOs are diversifying portfolios beyond traditional fixed income assets as a strategy to drive investment yield and returns.

• Spreads between Triple-B bonds and treasuries have narrowed dramatically since the financial crisis, so much so that companies have been taking more risk every year, but are getting paid less to do so.

• The life insurance industry has less than 1 percent of invested assets in emerging market debt, though EM countries are contributing to over 50 percent of global GDP.

• When looking at government debt to GDP, debt in developed countries represents over 106 percent of GDP, whereas debt in emerging markets countries now represents 33 percent of GDP.

• Emerging markets debt credit ratings have been on a steady incline. According to Barclay’s Emerging Markets Debt Index, the weighted average rating of this asset class is now in the Triple-B.