Tisch Calls Bonds ‘Certificates of Confiscation’
“When I got started in the business, bonds were called certificates of confiscation,” Tisch, 59, said today at a conference sponsored by Sanford C. Bernstein & Co. in New York, the city where Loews is based. “T-bills and fixed-income securities these days are still certificates of confiscation.”
Loews holds about $40 billion in fixed-maturity securities at its CNA Financial Corp. (CNA) insurance subsidiary. The Chicago- based insurer has shortened the maturity date of its holdings as rates fell. The share of the CNA portfolio due after 10 years dropped to 30 percent as of March 31 from 50 percent at the end of 2010, regulatory filings show.
The portfolio runs off fast enough that when interest rates rise, “which I expect, at some point in time, we’ll be able to invest in longer-dated securities,” Tisch said.
Ten-year note yields lost 12 basis points to 1.622 percent as of 4:05 p.m. in New York. Investors are accepting lower rates for the safety of U.S. government securities as Europe struggles to contain its debt crisis.
The lower rates have pressured returns at insurers, which hold bonds to back obligations to policyholders. CNA, which sells property-and-casualty coverage, has dropped about 5.9 percent in the past year in New York trading. MetLife Inc. (MET), the largest U.S. life insurer, slumped 32 percent and No. 2 Prudential Financial Inc. (PRU) declined 26 percent.
Prudential and New York-based MetLife said at investor presentations last week that they have been charging more for some savings products and counting on hedges to reduce the risk tied to record-low yields. The Federal Reserve, led by Chairman Ben S. Bernanke, has said conditions may warrant “exceptionally low levels” for rates through at least late 2014 as the U.S. copes with an unemployment rate that has been more than 7 percent since late 2008.
“Interest rates are extremely low as a result of policy initiatives that are designed to try to flatten the yield curve and improve liquidity and encourage risk-taking,” Prudential Vice Chairman Mark Grier said in a May 22 presentation. “These are characteristics of policy actions through the crisis, not characteristics of policy actions in a healthy, robust economic recovery.”
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