September 24, 2024

By Cindy Beaulieu, Chief Investment Officer, John Petchler, CFA, Director, Private Placements, and Sam Otchere, Director, Private Placements

 

Private placement securities may provide attractive opportunities for insurance companies to enhance portfolio income.¹ They typically are rated investment grade and provide higher yields and stronger investor protections than are available in public securities with similar ratings and maturities.

Private placements are typically illiquid, but many insurers may be able to trade some of their current portfolio liquidity to potentially capture additional yield. Larger insurers generally have greater exposure to this sector and have effectively addressed liquidity issues. Small- to mid-sized insurers may be able to leverage opportunities in private placements by working with investment managers that can help them assess their liquidity needs and have the requisite experience, capabilities and access to deal flow.

Private placements offer a wider variety of maturities than are normally available in public debt, which may enable insurers to customize maturities to match their liabilities. In addition, this asset class may be able to provide portfolio diversification, as it includes both U.S. and non-domestic issuers that generally are not active in U.S. public debt markets.

About Conning
Conning (www.conning.com) is a leading investment management firm with a long history of serving the insurance industry. Conning supports institutional investors, including insurers and pension plans, with investment solutions, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America. Conning is part of the Generali Group.

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Disclosures:
Past performance is not a guarantee, predictor or indication of future results. Similar investments likely would produce different results under different economic and market conditions.

Footnote:
1 Insurers must be qualified institutional buyers with at least $100 million in assets under management to invest in private placements.

Additional Source Information:
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Risks:
Market Risk – Market, or systematic, risk is the risk that individual securities may be correlated with general market downturns regardless of the particular business conditions and outlook for the individual companies
Credit Risk – Eroding fiscal health in issuing companies resulting in inability to meet debt obligations
Inflation Risk – Inflation erodes the purchasing power of future cash flows from investments. In times of high inflation the value of securities may be reduced
Liquidity Risk – Liquidity risk can occur when market conditions do not allow transactions to be made in a quick and orderly fashion in relation to indicative market prices

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