November 7, 2017 / 7:17 AM / 2 years ago

Sompo Japan plans to increase U.S corporate bond investment

TOKYO, Nov 7 (Reuters) - Sompo Japan Nipponkoa Insurance Inc plans to increase investment in U.S. corporate bonds as it tries to secure returns amid persistently low yields on Japanese government bonds (JGBs) and other sovereign debts, senior officials said on Tuesday.

The property-casualty insurer, which is a core unit of Sompo Holdings Inc, also said it plans to curb investment in U.S Treasuries with currency hedging, as costs for protection against foreign exchange rate swings have become too high.

Japanese insurers have been under pressure to enhance yields as they face diminishing returns from JGBs, which were their traditional choice as safe investment, after the Bank of Japan’s massive monetary easing.

“In this low-interest rate environment, we will keep diversifying our investment portfolio to secure stable income,” said Hidetoshi Kurachi, manager of the company’s investment planning department, in an interview with Reuters.

“We are increasing investment in overseas credit and growth areas like infrastructure finance,” he said.

Sompo Japan manages about 6 trillion yen ($52.66 billion) in investment portfolio, including 1.6 trillion yen in domestic stocks, as of June end.

The company is buying investment-grade U.S. corporate bonds through funds, Kurachi said, adding that these bonds have enough spreads to generate returns even after the currency hedging costs.

He also said the company may buy U.S. Treasuries without currency hedging when the dollar falls below 110 yen, adding the dollar is expected to be in a range of 114-118 yen at the current financial year end in March. For Japanese investors like Sompo Japan, buying dollar assets when the greenback falls against yen provides opportunities for potential gain in their yen-denominated value when the U.S. currency recovers in the future. The company has been reducing its domestic stock holdings by about 100 billion yen annually as it tries to unwind cross-shareholding with corporate clients, Kurachi added. ($1 = 113.9400 yen) (Reporting by Taiga Uranaka)

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