Insurers have defended the proportion of lower-rated assets in their investment portfolios following a report in The Australian newspaper today.

The newspaper says the insurers are increasing holdings of low grade and “junk” investment bonds in order to maintain profits amid record low interest rates, with anything rated below BBB considered “junk”.

But S&P Global Ratings Director of Insurance Ratings Craig Bennett says Australian property and casualty insurers have adapted to the low-investment-yield environment without materially increasing the risk profiles of their investment portfolios.

IAG says ratings cuts on Australian bank subordinated debt contributed to an increase in the proportion of lower-rated investment assets in its portfolio at the end of last financial year.

A breakdown of the company’s asset allocation, released with its financial results, shows 23% was rated less than A for credit quality, compared with 14% a year earlier.

“The quality of IAG’s investment book is strong, with 73% of the fixed-interest and cash portfolio rated in the AA or higher category,” a spokesman told insuranceNEWS.com.au.

“The increase in the proportion of the book rated below A largely reflects a credit ratings downgrade of Australian banks’ subordinated debt earlier this year.”

The most recent results also show 11% of QBE’s interest-bearing financial assets were rated less than A, steady from the end of December, up from 9% a year earlier and 6% at June 2015.

QBE Chief Investment Officer Gary Brader says the company sought to modestly increase holdings of BBB securities over the past couple of years, from a low base. He says the move partly reflects a diversification away from banks.

A high proportion of global industrials are rated BBB.

The company says its analysis suggests the average BBB-or-below exposure of its global property and casualty insurer peers is 27%. QBE says it has an overall risk appetite for BBB and below of a maximum 20%, which has been steady for several years.

For Suncorp, 16% of fixed-income investment assets were rated BBB at June 30, compared with 7.4% a year earlier. Holdings of AAA fixed-income assets grew to 44% from 35.8%