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Allstate Corp. (ALL), 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.
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