(Bloomberg) -- Insurers that have been supporting portfolioswith credit risk to counter low interest rates should considerdiversifying with alternatives such as private equity, assetmanager Conning & Co. said.

“We’re getting toward the end of the credit cycle, getting to anarea where you have a lot of risk, then adding more,” ScottDaniels, head of investment advisory at the Hartford,Connecticut-based company, said in a phone interview Wednesday. “Wedon’t think that’s the best plan.”

Hedge funds, master limited partnerships and commercialmortgages should all be considered for the investment mix, Danielssaid. Allstate Corp. and American International Group Inc. areamong insurers that have allocated resources toward private equityand other alternatives while coping with low interest rates.

Book yields, a measure of income from bonds, are near historiclows, plunging from about 4.4 percent in 2007 to less than 3.2percent last year, Conning said in a report being issued Thursdaydiscussing trends for property-and-casualty insurers.

The asset manager, which oversaw $92 billion as of June 30,modeled scenarios of rising interest rates, high inflation,continued low rates or a stock market crash. In each situation, ahypothetical portfolio with 20 percent allocated toward alternativeassets instead of equities or bonds was more valuable to insurersover a five-year period.

“There’s a very broad universe of assets out there beyond fixedincome and public stock,” Daniels said. “It may seem intimidatingor scary on a standalone basis, but when you look at adding a fewpercent to your current portfolios, you might end up in a betterplace in the long term.”

--With assistance from Selina Wang in New York.

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