German Insurer Performs Strongly With High-Rated Bond Bets

One of Europe’s top insurers has unveiled an impressive performance for a low-rate market.

(March 25, 2014) — Talanx, one of Germany’s biggest insurers, has produced an investment return of 4%, despite the low rate environment and a portfolio which has more than 90% in fixed income.

The insurer published its annual results yesterday, revealing its portfolio of assets under own management grew to €86.3 billion despite the moderating effect of exchange rates. However, it predicted a lower rate of return for the year ahead, targeting 3.4%.

“Talanx continues to have a [relatively] conservative investment portfolio. This is a direct consequence of our core risk management target to allocate a maximum of 50% of our risk-based capital to market risks,” press officer Dr Gesa Panetta told aiCIO.

“Our share of fixed-income investments stands at 91% (the same as at the 2012 year end, and slightly up on September 2013’s figure of 90%). Our share of A-rated or better fixed-income securities stands at 81%, so, the quality of our bond portfolio remains very high.”

Panetta said Talanx’s equity exposure had remained low throughout 2013, amounting to just 1.1% of the overall portfolio when taking derivatives into account.

The small amount of alternative and real estate helped contribute to an overall diversification however, she added.

The full report can be found here.

Talanx’s fixed income ratio is relatively racy compared to other insurers in Germany. In December, aiCIO reported that German insurers typically had at least 95% allocation to fixed income assets.

“The biggest challenge for German institutional investors is to achieve their long-term return target of around 4% given the current yield levels and market outlook,” said Frank Witt, PIMCO’s head of institutional client service in Germany.

“At the moment, 10-year yields stand at 1.7% for German bunds… in recent years, investors have realised that traditional approaches may not be sufficient to meet their long term objectives.”

Related Content: Germany Versus The Regulator and Insurers Outsourcing for Esoteric Fixed Income 

«