(Bloomberg) -- Insurers that have been supporting portfolios with credit risk to counter low interest rates should consider diversifying with alternatives such as private equity, asset manager Conning & Co. said.
“We’re getting toward the end of the credit cycle, getting to an area where you have a lot of risk, then adding more,” Scott Daniels, head of investment advisory at the Hartford, Connecticut-based company, said in a phone interview Wednesday. “We don’t think that’s the best plan.”
Hedge funds, master limited partnerships and commercial mortgages should all be considered for the investment mix, Daniels said. Allstate Corp. and American International Group Inc. are among insurers that have allocated resources toward private equity and other alternatives while coping with low interest rates.
Book yields, a measure of income from bonds, are near historic lows, plunging from about 4.4 percent in 2007 to less than 3.2 percent last year, Conning said in a report being issued Thursday discussing trends for property-and-casualty insurers.
The asset manager, which oversaw $92 billion as of June 30, modeled scenarios of rising interest rates, high inflation, continued low rates or a stock market crash. In each situation, a hypothetical portfolio with 20 percent allocated toward alternative assets instead of equities or bonds was more valuable to insurers over a five-year period.
“There’s a very broad universe of assets out there beyond fixed income and public stock,” Daniels said. “It may seem intimidating or scary on a standalone basis, but when you look at adding a few percent to your current portfolios, you might end up in a better place in the long term.”
--With assistance from Selina Wang in New York.
Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
