XL Group Plc Chief Executive Officer Mike McGavick said the insurer is looking to illiquid securities and infrastructure investments to boost portfolio yields squeezed by interest rates that are near record lows.
“We can get a little bit into the equity markets and into some illiquid items as well, like some of the distressed debt from the last crisis,” McGavick said in a Bloomberg Television interview Friday with Betty Liu. The Dublin-based insurer has a core of safe holdings, and “we can take this longer-dated stuff because we’re not forced sellers.”
XL completed a $4.2 billion acquisition Friday of Catlin Group Ltd., a Lloyd’s of London company, as McGavick seeks scale to compete against newcomers to his industry. Reinsurance has becomes more competitive with hedge funds and other investors looking to weather-related bets to diversify risks.
He expects additional consolidation after a wave of deals announced this year. Endurance Specialty Holdings Ltd. agreed to buy Montpelier Re Holdings Ltd., and Brit Plc said it was selling itself to Fairfax Financial Holdings Ltd. Italy’s Exor SpA announced a $6.4 billion bid last month to break up a merger between PartnerRe Ltd. and Axis Capital Holdings Ltd.
“There are a number of pressures in the sector,” McGavick said. “There is a thirst for new capability so I think there will be more.”
Taking Risks
XL’s investment portfolio included more than $30 billion of assets as of Dec. 31, mostly in bonds such as corporate debt and government securities. The CEO said there is potential for his industry to increase bets on infrastructure projects.
“One of the challenges to the global regulators is to change the capital rules so that insurers, who are the most logical holders of such risk, can be taking such risks,” he said.
McGavick’s firm slipped 6 cents to $37.02 at 11:14 a.m. in New York trading. XL has advanced 7.7 percent this year, beating the 3.5 percent gain of the 76-company Bloomberg World Insurance Index.