ANALYSIS:The insurer's portfolio bias towards German investments stems from its need to avoid risk, BARRY O'HALLORAN.

INSURANCE GROUP FBD Holdings did not take up any of the bonds issued by the Government this year on the grounds they are “too volatile”.

The State last week raised €4 billion through the issue of a three-year bond, and in January went to the market to raise €6 billion in instruments due to mature in five years.

The Government needs to raise at least €23 billion this year because of increased pressure on the public finances.

FBD produced results for 2008, showing it held €466 million worth of German government bonds at the year’s end, amounting to 45 per cent of its investment portfolio.

However, its chief executive, Andrew Langford, said yesterday it did not take up any of the bonds issued by the Government. He pointed out German government bonds are the safest in the euro zone, and added the company has to make conservative investments.

“In terms of Irish gilts, there is a risk premium for Irish gilts and there is a reason for that,” he said.

Mr Langford added that their yields are too volatile, and said that, for the moment, there is still too much uncertainty involved in investing in the bonds.

Insurance companies’ investment money is raised from premiums across a range of products, including gilts, equities, property and cash. At the same time, they are obliged to maintain assets and reserves at a level which will allow them to comfortably meet liabilities on the policies they underwrite.

Losses on equities, properties and other investments prompted FBD to write down the value of its assets by €126 million at the end of last year. Just over €46 million of the loss was attributable to a fall in the value of shares and corporate bonds held by the company. FBD took a €30.5 million hit on the value of its investment properties.

Finance director Cathal O’Caoimh said this was due to both revaluation and weakness of sterling, as many properties are located in Britain.