Prudential Bets on Mortgages, Cites Capacity for Risk in Japan

  • Private-placement debt added to counter low JGB yields
  • Insurer seeks to ‘enhance’ net investment income in Japan

Prudential Financial Inc., the second-largest U.S. life insurer, said it has the ability to add riskier fixed-income holdings in Japan to get better yields than what’s available on government bonds.

The insurer has made “significant acquisitions in attractive asset classes such as commercial mortgages and private placements,” the Newark, New Jersey-based company said in a slideshow on its investment portfolio in Japan. Company executives including Chief Investment Officer Scott Sleyster are scheduled to make presentations in Tokyo later Thursday.

Prudential is facing challenges in the nation including low bond yields and the possibility of a substantial population decline in coming decades. Ten-year Japan government bonds have negative yields as the country’s central bank seeks to stoke economic growth.

Still, the insurer highlighted responses such as raising prices, selling more dollar-denominated products and shifting its investment portfolio to add higher-yielding assets. Investment-grade private placements and commercial mortgages account for 23 percent of purchases in the Japan fixed-income portfolio this year. Another 4 percent of acquisitions were in junk assets.

“Japan portfolios have additional capacity for credit risk, which could be utilized to further enhance net investment income,” the company said in the presentation, adding that changes would take capital strength into account.

Prudential slipped 2.3 percent in New York trading this year through Wednesday.

    Before it's here, it's on the Bloomberg Terminal.