Euro insurers switch negative yields for emerging debt
Wednesday, 08 21 2019, Category: Insurance and Reinsurance, Country: Europe
European insurers are snapping up more emerging-market debt, spurred on by worries that negative-yielding bonds in Europe might not offer enough returns to meet their future payments.
The move represents a shift for investors, who have usually filled much of their portfolios with high-grade bonds issued by developed-market governments and companies.
An estimated 250 billion euros, or around 5% of European insurers’ assets, are invested in fixed income, up from 2% to 3% five years ago, said people at several insurers.
Signs of the shift can be seen in their participation in recent euro-denominated debt issues by countries like Ukraine, Indonesia, Saudi Arabia, Romania, Croatia, Serbia and Egypt.
Roadshows for Saudi Arabia and Ukraine attracted German, Italian and French insurance businesses not previously active in emerging markets, a person involved in both issues said.
Euro-denominated issues make up less of the hard-currency market than issues denominated in U.S. dollars, but European insurers have a natural bias toward such debt. It eliminates foreign-exchange risk and capital charges for holding assets outside their home currency.
“Emerging-market hard-currency bonds offer a valid alternative in terms of risk-reward to euro zone core and periphery bonds,” said the head of the asset-management arm of a leading European insurer who asked to remain anonymous.