Baloise CEO Buys U.S. Secured Loans in Corporate Debt Push
Sept. 10 (Bloomberg) — Baloise Holding AG is buying U.S. leveraged loans to increase its holdings of corporate debt, as insurers embrace riskier investments amid record-low interest rates.
“We will gradually increase our investments in corporate debt in Europe and have started investing in U.S. senior secured loans, although government bonds are still the backbone of our investments,” Martin Strobel, the chief executive of Switzerland’s third-largest insurer, said in an interview two days ago in Basel, Switzerland. He declined to specify an amount.
Issuance of secured debt, also known as leveraged loans, used to finance buyouts, reached a record $695.2 billion last year in the U.S., according to data compiled by Bloomberg. Leveraged loans have returned 81 percent in the past five years through January, almost five times the 16.6 percent return of the Bank of America Merrill Lynch U.S. Treasury Index.
Baloise, which generated almost half of its sales in Switzerland last year, will also expand its real estate investments to include Swiss housing projects, Strobel, 47, said.
Strobel joins industry executives, including Assicurazioni Generali SpA Chief Investment Officer Nikhil Srinivasan in taking on more risk to boost returns. Jim Tisch, CEO of New York-based insurer Loews Corp., said in May yields on government bonds are “too damn low.” Lower yields make it harder for insurers, who tend to be conservative investors, to meet policyholder obligations and shareholder earnings targets.
Limited Supply
Global corporate debt markets are undergoing an unprecedented expansion. Investors are seeking alternatives to government securities as central banks hold interest rates at record lows to spur growth.
Strobel acknowledged that finding debt to buy may be a challenge. “There is a limited supply of corporate debt or senior secured loans of a certain quality,” he said. “We aren’t the only ones interested in these assets.”
Bond yields in Europe this year have extended a decline that began after the European Central Bank pledged to contain rates on government bonds during the euro region’s debt crisis in 2012. More recently, the bank has sought to stimulate economic growth and ward off broad-based price declines, measures that have further weighed on returns. ECB President Mario Draghi stepped up the effort last week, cutting benchmark rates and announcing plans to buy bonds backed by loans to corporations.
Difficult Climate
The yield on 10-year U.S. Treasuries has fallen this year, reflecting the uneven domestic growth outlook, conflicts in Ukraine, Israel and Iraq and concern that Europe’s economy is stuck in a rut.
“Government bonds are a difficult topic,” Strobel said. “We expect the low-yield environment to continue for quite a while.”
Fixed income accounted for about half of Baloise’s investments at the end of June, which it valued at 63.3 billion Swiss francs ($67.6 billion). Corporate debt totaled 12.2 billion francs.
Pricey Property
In real estate, Baloise is seeking to expand its holdings of Swiss developments of multi-family housing projects of between 10 million francs and 15 million francs.
“In our real estate portfolio we currently buy very little because the prices have increased very much recently,” Strobel said. “Hence we have decided to strengthen our renovation efforts and to selectively increase our development business.”
Baloise has risen 7 percent this year, valuing the company at about 6.1 billion francs. That compares with a 4.2 percent rise of the 32-member Bloomberg Europe 500 Insurance Index.
–With assistance from Roxana Zega in Zurich and Faris Khan in New York.
To contact the reporters on this story: Carolyn Bandel in Zurich at cbandel@bloomberg.net; Jan Schwalbe in Zurich at jschwalbe6@bloomberg.net To contact the editors responsible for this story: Mark Bentley at mbentley3@bloomberg.net Cindy Roberts
