April 20, 2018 / 6:11 AM / a year ago

Japan insurer Aioi Nissay eyes alternative assets, foreign equities

TOKYO (Reuters) - Japan’s Aioi Nissay Dowa Insurance is considering investing in alternative assets and foreign stocks in the current fiscal year as it looks to diversify its portfolio, a senior official said on Friday.

Faced with low domestic yields, which have been driven down by the central bank’s extensive monetary easing, Japanese institutional investors have increasingly sought better returns abroad and away from assets such as government bonds.

The insurer has assets of around 3.5 trillion yen ($32.5 billion).

While Aioi Nissay will keep yen bonds - at around 50 percent of their holdings - as their core assets, it will not re-invest proceeds from maturing debt back into bonds, Akihito Ichikawa, general manager at the insurer’s investment planning department, told Reuters.

“We allowed our yen bond holdings to decrease last fiscal year as their yields are too low. We will instead look to invest in foreign bonds, alternative assets and foreign stocks,” Ichikawa said. The current fiscal year ends in March 2019.

Dollar and euro-denominated bonds will remain the insurer’s mainstay foreign debt investments this year. But Aioi Nissay will consider trimming currency hedged dollar-denominated bond holdings this fiscal year due to their high costs.

Hedged foreign bonds are a safer bet for investors as they offer protection from potentially unfavourable currency exchange rate fluctuations, but they also incur more costs compared with unhedged investments.

Ichikawa said Aioi Nissay will continue to increase its unhedged foreign bond holdings this fiscal year, although they are wary of sudden bouts of appreciation by the yen.

The dollar slipped to a 16-month low of 104.56 yen in March. It pulled back to 107.70 as of Friday, but was still down 4.5 percent against its Japanese peer this year.

Aioi Nissay said it aims to continue shaving its exposure to Japanese equities, which make up about 30 percent of their assets.

On potential risks to the market emanating from U.S. President Donald Trump’s stance on politics, trade and diplomacy, Ichikawa said: “We do not think they will lead to utter chaos, but the markets will remain vulnerable to bouts of volatility.”

Aioi Nissay Dowa is the non-life insurance arm of MS&AD Insurance Group Holdings Inc, Japan’s biggest property and casualty insurance group.

($1 = 107.6700 yen)

Editing by Jacqueline Wong

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