(Updates with share gain in the sixth paragraph.)
Feb. 2 (Bloomberg) -- Allstate Corp., the largest publicly traded U.S. auto insurer, is investing in energy and real estate as near record-low interest rates squeeze income from bonds, Chairman and Chief Executive Officer Thomas Wilson said.
“For insurance companies or long-term investors, obviously, low interest rates reduce the economic upside we have from investing in America,” Wilson said in a phone interview yesterday after Allstate announced fourth-quarter results. “It encourages people to invest in different things. Sometimes those different things are real assets.”
Insurers invest in fixed-income securities to back policyholder liabilities and generate income. Yields on their portfolios have been under pressure as the Federal Reserve holds its benchmark interest rate at between zero and 0.25 percent.
The central bank last week extended its pledge to keep interest rates low through at least late 2014. About half of Allstate’s $95.6 billion portfolio was in corporate bonds as of Dec. 31, according to a presentation on the Northbrook, Illinois-based company’s website. The insurer also has holdings of Treasuries, municipal debt and mortgage-backed securities.
“When you’re getting less than 2 percent on a 10-year Treasury, or 3 percent on a corporate bond for 10 years, it doesn’t feel like as good of a return relative to the risk,” said Wilson. The insurer has increased investments in oil and gas assets and equity real estate, he said.
The insurer surged 4.4 percent to $30.61 at 9:31 a.m. in New York after fourth-quarter results beat analysts’ estimates. Net income was $724 million in the period, more than double the profit a year earlier, on reduced losses from catastrophes and improving margins for home coverage.
Allstate’s holdings outside of bonds included $4.4 billion in limited partnership interests such as private-equity, real- estate and hedge funds at the end of the third quarter. The investment in real-estate funds jumped 54 percent in the 12 months ended Sept. 30, to $983 million, according to the most recent company filings.
Some of those bets have helped maintain yields, Wilson said. Total portfolio yield was 4.5 percent in the fourth quarter, compared with 4.3 percent a year earlier, the company said in a statement yesterday.
Net investment income declined to $975 million in the quarter from $998 million a year earlier, as the life-insurance unit shrank its portfolio after reducing the fixed-annuity business, the company said in the statement.
--Editors: Dan Reichl, Peter Eichenbaum
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