Insurers: The Next Big Thing for Pension Investors?

(April 19, 2013) -- Good solvency ratios—set to improve under Solvency II regulation—and transparent balance sheets set these financial institutions apart from their banking cousins, TwentyFour Asset Management told investors in a note to market today.

"Over time, as the fears in the financial sector lessened and investors began to focus on fundamentals again, insurance company debt has showed a considerable recovery and became the best performing sector of last year, delivering a return of over 37.5%," said Eoin Walsh, portfolio manager at the firm. "This recovery was aided in no small part by the insurance companies themselves as they honoured all of their investor obligations by continuing to call bonds on the first call date, as they always had done in the past."

These companies may not be a flashy or exciting bet, but as aiCIO's quote of the week from Paul Samuelson (1915-2009), MIT economist and Nobel laureate, explains: "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas."

And there is more of this sector to buy, TwentyFour said. Issuance this year is climbing, with European firms Scottish Widows and Bupa already releasing 10-year subordinated debt to the market.

These bonds were issued at 5% and 5.5% respectively which is considerably higher than the 3.5% earned by the Sterling Investment Grade Corporate Index, the fund manager said, meaning there remains appetite in the primary and secondary markets.

On a wider view, Nick Gartside, international CIO for fixed income at JP Morgan Asset Management commented on his blog today that as central banks continue to flood the market, that liquidity "is snapping up any bond that has yield and offers the possibility of return.  This trend of bond performance looks set to continue."

Maybe Solvency II might have a silver lining after all.