* To accelerate shift to riskier assets as interest rates stay low
* Ready to move more flexibly, could hold more cash
* Markets are likely to stay highly volatile on Trump policies
* Sees challenging investment environment continuing
By Taiga Uranaka and Taro Fuse
TOKYO, Jan 25 (Reuters) - Nippon Life Insurance Co will embark on project finance investments from the next fiscal year as it explores opportunities around the globe in an ultra-low interest rate environment, President Yoshinobu Tsutsui told Reuters.
Nippon Life, Japan’s largest private-sector life insurer, and domestic rivals have been hurt by diminishing investment returns after the Bank of Japan launched aggressive monetary easing in April 2013 under Governor Haruhiko Kuroda.
Insurers are shifting more money away from Japanese government bonds (JGBs), their traditional investment asset, into riskier but higher-yielding ones such as foreign corporate bonds in efforts to diversify returns.
Tsutsui said his company would accelerate the shift to non-traditional fields, including overseas project finance, in the next financial year that starts in April.
“We have not been able to invest in JGBs since negative interest rate. We have to take certain risks,” he said, referring to the BOJ’s negative interest rate policy that has driven down JGB yields.
In project finance, lenders provide loans to long-term infrastructure and industrial projects such as power generation and get payment from cash generated by operations. They are considered riskier than corporate lending but generally produce higher returns.
“We have already been approached for some project finance deals and we will put a certain level of effort in the field from the next financial year,” he said.
Nippon Life, which has 63 trillion yen ($555 billion) in assets, has participated in several project finance deals in Japan, including an 800 million yen loan to a wind farm. He did not say how much the company was planning to invest in overseas project finance.
Nippon Life’s move comes as Tsutsui expects the challenging investment environment to continue for asset managers.
“Markets are likely to stay highly volatile, swayed by a mix of positive and negative reactions to U.S. President Donald Trump’s remarks and policies,” he said.
“We need to be ready to move flexibly,” he said, adding it could hold more in cash if it determines the markets are not good for investment or allocate money earlier than planned if the situation is reversed.
On mergers and acquisitions, Tsutsui said Nippon Life puts an equal emphasis on targeting potential asset management companies and life insurers.
In October last year, it completed the acquisition of an 80 percent stake in National Australia Bank’s life insurance unit for A$2.2 billion ($1.67 billion).
As low interest rates continue at home and overseas, life insurers’ asset management operations have come to play a bigger role in determining the competitiveness of insurance products, Tsutsui said.
($1 = 113.4800 yen)
$1 = 1.3198 Australian dollars Editing by Jacqueline Wong