North American Life Insurers “Accidentally” Pile Up Massive Distressed Debt Holdings
by Tyler Durden
ZeroHedge.com
Aug 12, 2016
Accommodative monetary policy by the Fed has crushed bond income for insurers. According to Bloomberg, 2015 investment income at North American insurers dropped below 2011 levels.
Unsurprisingly, in their stretch for yield, insurers added to energy bond positions in 2015 to offset the funding gap. Now, the collapse of oil prices has apparently left North American life insurers in a bit of a pickle with distressed debt holdings having doubled in a matter of 6 months as IG energy bonds turned to junk.
North American life insurers have accidentally doubled their distressed-debt holdings in just six months. In the future, they are poised to build on that mound by design.
Companies including Prudential Financial Inc. and MetLife Inc. held $1.32 billion of bonds that were in default, or close to it, at the end of the second quarter, their highest level since the middle of 2011, according to Bloomberg Intelligence data.
They did not intend to buy distressed debt: In many cases they bought investment-grade bonds from energy drillers and retailers that ended up heading south. Insurance companies’ trouble with these bonds underscores how even conservative investors have been hurt by plunging oil prices.
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