With interest rate volatility reshaping fixed income, investors are seeking segments that can deliver both resilience and yield. Subordinated insurance bonds offer this balance, backed by the solid fundamentals and regulatory strength of the insurance industry.
We sat down with Laurent Misonne, Managing Director at J. Safra Sarasin, and Dinesh Pawar, Head of Insurance Credit to discuss how the JSS Twelve Sustainable Insurance Bond strategy combines income potential with a sustainable investment lens.
What specific levers do insurance bonds, such as the JSS Twelve Sustainable Insurance Bond strategy, offer to today’s search for yield?
Insurance bonds like the JSS Twelve Sustainable Insurance Bond strategy provides exposure to a segment of the market that has historically delivered attractive risk-adjusted returns. By targeting subordinated debt issued by well-regulated insurers, these strategies benefit from the robust capitalisation and oversight that characterise the insurance sector, while capturing yield premiums over traditional investment-grade corporates.
What makes them relevant today is their ability to provide a stable income stream in an environment where traditional fixed income can struggle to meet investors’ yield expectations. They may also support diversification by adding exposure to a defensive and historically resilient industry.
In a volatile interest rate environment, how do subordinated insurance bonds stand out as a compelling asset class for income-oriented portfolios?
Subordinated insurance bonds are positioned to appeal to income-focused investors navigating uncertain rate dynamics. Their hybrid nature typically offers enhanced spreads to compensate for their subordinated status in the capital structure. At the same time, the insurance sector’s regulatory regimes like Solvency II, contributes to investor confidence by promoting issuer resilience.
In periods of market uncertainty, these bonds can provide a balance: enhanced income premium potential while benefiting from issuers with disciplined capital management. For portfolio construction, they may serve as an attractive satellite allocation to complement core fixed income positions.
ESG criteria are becoming essential across asset classes, even in more technical segments like insurance bonds. How can a sustainable approach be effectively applied without compromising on returns?
Applying ESG consideration in specialised markets like insurance bonds requires an informed and pragmatic approach. Rather than focusing solely on exclusions, effective strategies evaluate insurers’ ESG factors at both operational and strategic level, from their investment portfolios to underwriting practices and governance standards.
Far from undermining returns, this ESG lens often highlights insurers that may demonstrate long-term resilience and risk management, attributes which may contribute to more stable credit profiles. By actively engaging with issuers and favouring those leading in sustainability, investors can build portfolios aligned with ESG objectives while maintaining financial discipline.
From currency risk management to share class selection, what level of flexibility can these strategies offer for international investors with specific needs or domiciles?
Modern insurance bond strategies are increasingly designed with international investors in mind. The availability of multi-currency share classes allow investors to manage or hedge FX exposure relative to their home currency. This is particularly valuable for clients with liabilities or reporting requirements in different jurisdictions.