(Bloomberg) -- The Japanese unit of Massachusetts Mutual Life Insurance sold six times more bonds this year, shoring up capital as customers bought foreign currency policies amid a weakening yen.
The business sold $175 million of subordinated notes last month, adding to an inaugural $29 million sale in October that was the first such offering by a Japanese unit of an overseas insurer. The latest deal included perpetual securities with a 2.2% coupon. That compares with an average 0.5% yield for Samurai bonds sold by overseas companies and 0.31% for domestic corporate debt.
“Our foreign-currency business had record sales last year and increased our risk so we looked to boost capital,” said Mitch Imoto, the chief executive of MassMutual's Tokyo-based arm. “On an absolute level it’s definitely cheaper to fund in Japan.”
With yields on 30-year yen government bonds under 1.4%, Japanese investors are buying more global investment plans and the nation’s largest insurers including Nippon Life Insurance and Meiji Yasuda Life Insurance are boosting overseas note holdings to enhance returns.
Households in Asia’s second-largest economy increased foreign currency assets to $3.8 billion as at the end of 2014, or 2.7% of total financial holdings, the highest level since 2008, Bank of Japan data show.
RISING PROFITS
Six of Japan’s biggest life insurers including Nippon Life and Dai-ichi Life Insurance increased profits in the first fiscal half of 2014 after investment earnings received a boost from higher yielding overseas bond holdings. Of the industry’s $2.8 trillion in assets at the end of January, some 18.6 % were invested in foreign securities, up 2.2 percentage points from a year earlier. Japanese insurers hedge most of their offshore holdings to protect against currency fluctuations.
Domestically, yields on long-term Japanese government bonds fell last year. Meiji Yasuda and Dai-ichi withdrew fixed-term yen insurance policies as they became less appealing. MassMutual, which sells its products via domestic banks and brokerages including Nomura Holdings are joining bigger domestic insurers in boosting non-yen policy sales.
Insurance plans and annuities at Dai-ichi Frontier, which specializes in foreign currency policies, rose 31% to number 706,000 at the end of 2014 versus nine months earlier. Revenue increased 63% in the period, compared with a 6% gain at the main group company Dai-ichi Life that focuses on yen products.
NO CHOICE'
Sales at MassMutual should rise to a fresh record for the full year ending March 31, topping a previous high of $3.3 billion set in 2009, according to Imoto. The company’s foreign currency assets have jumped 2.5 times to $5.4 billion in the last two years as it expanded sales of U.S. and Australian dollar-denominated plans.
“Japanese investors have no choice but expand to their pool of investments,” said Yusuke Ueda, a Tokyo-based credit analyst at Bank of America. “Regional banks are looking to expand investments into new yen-based products that offer higher yields with good credit quality.”
MassMutual also raised capital that protects against losses via a syndicated loan that it marketed to regional Japanese banks, a process that may open doors for future policy sales business, according to Imoto. MassMutual contacted all of Japan’s regional lenders, 155 in total, to ascertain their interest in the subordinated loan, Chief Financial Officer Satoshi Kamewaka said.
Massachusetts Mutual, the parent, has a credit rating of AA+ from Standard & Poor’s, its second-highest, and two levels above the Japanese sovereign. MassMutual’s subordinated debt offerings were scored either A or A+.
“We’ve never run a TV commercial so a lot of people probably don’t know us,” Imoto said. “It’s a big plus for us that through the sale of these bonds, and the loan, regional banks and other financial institutions have got to know us better. By doing these deals we’ve expanded our latitude to take on risk.”
