US life insurers driven to riskier assets

[NEW YORK] THE rock-bottom yields on offer in the corporate bond market are putting pressure on investment returns for US life insurers and driving them into riskier and less liquid investments such as private equity and infrastructure debt, insurers said.

Low rates have hurt insurer investment returns and the profitability of insurance products with guaranteed returns. Life insurers' portfolios, on average, lost 0.8 per cent in 2013, according to SNL Financial. Those weak returns, along with more competition from private pension funds for the supply of US corporate bonds, have prompted US life insurers to consider riskier strategies to provide richer compensation.

"The key focus for us is the race for yield," said Todd Hedtke, vice-president for investment management at Allianz Life Insurance of North America, which has US$80 billion in assets in the US. Allianz Life, owned by Allianz Group in Germany, has invested in such projects as toll roads and stadiums and in renewable energy initiatives such as wind parks and solar farms. On a global basis, Allianz Group has made about US$2 billion of such investments since the beginning of 2013, with Allianz Life accounting for about US$400 million.