(Bloomberg News) BlackRock Inc., the world's largest asset manager, said insurers may buy leveraged loans as they seek to boost portfolio returns, replacing investors that retreated from the market.
The firm, which manages over $200 billion in general- account assets for more than 150 insurance companies, is pitching loans as clients seek to diversify. Aflac Inc., the largest provider of supplemental health coverage, separately initiated a program in May for investing in the debt to U.S. and Canadian corporations, aiming to increase yields and protect against rising rates. Reinsurer Everest Re Group Ltd. has also added loans to its portfolio.
"Insurance companies will be the next phase of capital into the market," BlackRock's Leland Hart, who oversees more than $10 billion in loans, said in a phone interview.
Insurers have been shifting assets as the Federal Reserve keeps benchmark interest rates in a target range of zero to 0.25 percent. BlackRock, based in New York, is seeking capital for a market that shrank by about 13 percent since the 2008 collapse of Lehman Brothers Holdings Inc. caused investors to shun riskier assets such as high-yield, high-risk loans.
Aflac had invested $72 million in secured loans as of June 30 and may spend more as it contracts with asset managers to oversee as much as 10 percent of its $93 billion portfolio. Leveraged loans to corporations are rated below Baa3 by Moody's Investors Service and lower than BBB- by Standard & Poor's.
"When we look at the fundamentals of the underlying companies, they're actually pretty solid," Eric Kirsch, who was named Aflac's global chief investment officer last week, said in a phone interview after his hire was announced. Loans are one of the asset classes that the company may invest in to diversify its balance sheet, he said.
Everest Re has added high-yield, floating-rate loans to its portfolio as investment-grade fixed-income investments mature, Jack Nelson, chief investment officer, said yesterday at the Reactions Magazine North America Conference in New York. The shift is part of a strategy to boost the Bermuda-based company's investment returns, he said.
Syndicated loans are one way that insurers are seeking to improve yield in their investment portfolios, said Matt Malloy, head of insurance for North America at JPMorgan Asset Management, during a panel discussion at the Reactions conference.
Insurers are "focusing on yield in other areas outside of traditional fixed income," said Malloy. That includes investments in emerging-market debt, high-dividend stocks and private-market credit such as mezzanine finance and senior direct lending, he said.