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Japan insurers flock to foreign bonds as BOJ kills golden geese

Japanese insurers, including Dai-ichi Life Insurance, left, and Nippon Life Insurance, are stepping up purchases of foreign bonds.

TOKYO -- Japan's leading life and nonlife insurance companies plan to increase their foreign bond purchases, as the Bank of Japan's negative rate policy has made it impossible to generate sufficient returns from their staple investment in Japanese government bonds.

     An examination of the asset management plans of 10 life insurance firms -- including Japan Post Insurance -- and four nonlife insurers by Nikkei Inc. found that they intend to invest roughly 5.2 trillion yen ($46.7 billion) in foreign bonds in the year through March 2017.

     That translates to more than 40% of their projected combined revenue of 12 trillion yen. All 14 firms aim to raise their foreign bond investment from a year earlier.

     Nippon Life Insurance sharply boosted its foreign bond investment in fiscal 2015. It will continue with this trend in fiscal 2016.

     "Only foreign bonds and a handful of other investments generate stable returns that exceed our insurance policies' guaranteed yields," said Kazuo Sato, general manager at the company's finance and investment planning department.

     Sumitomo Life Insurance began investing in foreign corporate bonds last summer. The company aims to raise its purchases of those securities by hundreds of billions of yen in fiscal 2016.

     Tokio Marine & Nichido Fire Insurance, a Tokio Marine Holdings unit, will hand over 50 billion yen to a U.S. unit that excels in American corporate bond investment.

Out of JGBs into risk assets

Meanwhile, eight of the 14 insurers plan to reduce their investment in JGBs, while three aim to hold their JGB investment steady by simply making purchases to make up for maturing holdings. The remaining three insurers plan to increase their net JGB investment.

     The 14 insurers' aggregate investment in JGBs is estimated to have risen by 1 trillion yen or more in fiscal 2015. For the current fiscal year, their net JGB investment will likely decline by about 100 billion yen if interest rates remain at current levels. Their focus will be on 20-year and other ultra-long-dated JGBs.

     Dai-ichi Life Insurance says that it has refrained from purchasing new JGBs since the BOJ implemented the negative rate policy.

     Seeing that the central bank will likely maintain accommodative monetary measures for some time to come, Japanese insurers are working to diversify their investments away from JGBs in search of higher returns.

     For instance, Japan Post Insurance set a goal of lifting the portion given to risk assets, such as foreign bonds and stocks, to 10% of its overall assets in management by fiscal 2017. The insurer will likely reach the target by the end of fiscal 2016, according to a company official.

     Mitsui Sumitomo Insurance, an MS&AD Insurance Group Holdings unit, plans to set up a 5 billion yen fund through subsidiary Mitsui Sumitomo Insurance Venture Capital to invest in financial technology start-ups. The insurer is eyeing roughly 10% returns on this investment.

     Taiyo Life Insurance and Daido Life Insurance, sister companies belonging to T&D Holdings, will shortly invest a combined 6 billion yen in a fund that specializes in small and midsize businesses.

(Nikkei)

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