Japan's Asahi Mutual Life Insurance plans to keep increasing its investment in foreign bonds in the fiscal year through March 2017, a senior company executive said on Tuesday.
"Dollar-denominated debt will remain at the core of our foreign bond investments, while European bonds will not play a main role," Masaru Tsuruoka, head of asset allocation & planning department, told Reuters in an interview.
Japan's life insurers, having previously held the bulk of their investments in Japanese government bonds (JGBs), are increasingly looking for higher returns in other assets as domestic yields have fallen to record lows under the Bank of Japan's negative interest rate policy.
Asahi Life said about 80 percent of its foreign bond holdings were in dollar-denominated debt, with the remaining 20 percent mostly invested in euro zone bonds. But the insurer may increase its dollar-denominated bond allocations in fiscal 2016/17 as euro zone bond yields are very low, Tsuruoka said.
The insurer said roughly 15 percent of its foreign bond holdings were unhedged. It does not plan to change this ratio in fiscal 2016/17 but it will review its stance depending on foreign currency levels in the latter half of the year.
Asahi Life said will also diversify its investments and aim for higher returns in instruments like dollar-denominated Additional Tier 1 (AT1) bonds issued by large Japanese banks.
AT1 bonds are designed to transform from debt to equity when capital of the issuing bank falls below a certain threshold.
The insurer said yen bonds will remain at the core of their portfolio, but investment amounts will decrease during fiscal 2016/17, mostly due to maturing debt.
"Insurers have traditionally invested in JGBs, but with yields in the 7-year and now 10-year zones now in the negative, so it is becoming difficult to invest in these maturities," Tsuruoka said.
The 10-year JGB yield fell to a record low minus 0.135 percent in March after the BOJ adopted negative interest rates early in the year.