Travelers Companies Inc., the second-largest U.S. commercial insurer, will invest in bonds rather than spend like a "sailor on leave" to seek higher gains from private equity and hedge funds, Chief Executive Jay Fishman said.
"The returns have not been there, so we've not been driving dollars into those classes," Fishman said at a conference Wednesday. "It's not as if we're out there with, you know, a sailor on leave with cash in their pocket ready to put it out to anyone."
U.S. insurers have been reaching for gains that exceed those from bonds and stocks by increasing private-equity and hedge fund assets 48 percent last year to $49.8 billion, according to the National Association of Insurance Commissioners. St. Paul-based Travelers had about $2.26 billion in such funds as of June 30, representing 3.1 percent of its invested assets.
"When the opportunities emerge and we think the pricing is right, we are clearly prepared to dedicate more to the alternative classes," Fishman said in New York. Still, he said, "our investment operations are in place to support our insurance operation, not the other way around."
Fishman also said Wednesday that Travelers held $12 million in debentures and $7 million in preferred equity from Fannie Mae and Freddie Mac at the end of the second quarter. Insurers are disclosing their stakes in the two companies after the U.S. Treasury stepped in to prevent their collapse, wiping out most of their market value.
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