Convertible bonds issuance has had a resurgence at a time when the asset class may help insurers concerned with inflation and potential interest rate hikes.
Convertibles can be attractive to insurers because they are designed to offer the upside potential of equities with the downside protection of a bond, and also have bond-like risk-based capital charges. They may also help bond portfolios hedge against inflation and interest rate hikes.
Issuance fell following the 2008 financial crisis in part because declining interest rates made traditional bonds a less expensive vehicle for most corporate financing needs, but convertibles are increasingly an option today for financing needs from newer companies as well as from established companies raising equity to preserve ratings and financial flexibility.
In Conning’s latest Viewpoint, “Rising Convertible Issuance May Aid Insurers Concerned with Inflation, Interest Rate Increases,” author David Tyson, a managing director and portfolio manager, outlines the changing market conditions and why insurers may wish to consider an allocation to convertibles.