- Says have invested `enormously' in hold-to-maturity bonds
- Says have avoided investing when interest rates were too low
Storebrand ASA, Norway’s largest listed life insurer, is snapping up bonds other investors are shunning.
As a life insurer, the Oslo-based company doesn’t need liquidity in the bonds since it holds most debt to maturity, according to Chief Financial Officer Lars Aa Loeddesoel.
“If there’s poor liquidity there will be a higher return,” Loeddesoel said in an interview Wednesday in Oslo. “We can reap that liquidity premium.”
Insurers are trying to navigate an environment of record low rates and increasing capital demands from regulators, as they need to find assets with returns high enough to cover their guaranteed rate obligations. Norway’s central bank has lowered its key policy rate to a record low 0.75 percent, while in Sweden the key rate is negative.
Storebrand’s average guaranteed rate is 3.4 percent and the rate on the portfolio of hold-to-maturity bonds is 4.8 percent. It has allocated 47 percent of its assets to hold-to-maturity bonds for its products with interest rate guarantee in Norway. The portfolio has an average rating of AA to AAA.
“The low rate doesn’t matter that much short term,” he said. “We have already invested enormously in hold-to-maturity bonds with a good maturity and a good yield that will keep us floating for many years.”
Storebrand, which has 552 billion kroner ($68 billion) under management, is looking for liquidity premiums in “high quality long-term” credit while avoiding government bonds. It typically invests in utilities, covered bonds and different “easy As” -- papers with guarantees from the state agencies such as the Norwegian Export Credit Guarantee Agency, according to Loeddesoel.
Storebrand took the opportunity in the summer to capture a jump in yields, and is now investing less as rates have fallen back down again. The company isn’t going out on the credit curve and hasn’t bought high-yield bonds for the hold-to-maturity portfolio, he said.
“That has a tendency to be stupid over time,” he said. “We haven’t invested when the rates have been too low.”