For years, Allianz SE was content with an investment diet of mostly low-risk bonds. More recently, the German insurer has lavished money on a military garrison for the U.K.'s Parachute Regiment, a Texas wind farm and a 16-mile sewer tunnel in London.Meanwhile, Switzerland-based Zurich Insurance Group AG has largely stuck with its bond-heavy ways.
The diverging strategies of two of Europe's largest insurers reflect the challenges facing an industry that has been upended by low and even negative interest rates, depriving it of the steady returns that once were the lifeblood of the sector.
Allianz's less easily resalable, but promising real-estate and infrastructure investments of late amplify a 2008 deal that granted the insurer proceeds from Chicago parking meters for more than 70 years.
These deals now offer the prospect of higher returns than traditional bonds and reflect a burgeoning creativity-and potentially higher-risk profile-for an industry known for its conservative ways. In the downside-up world of negative interest rates, Allianz isn't the only insurer feeling a need to get more inventive.
"The average portfolio yield is around 3% for most of these companies," J.P. Morgan Chase & Co. analyst Michael Huttner said of insurers. "You don't have to go many years ago to where they would've been 4% and maybe 5%."
Analysts said dwindling yields have yet to cut into insurers' profitability in a significant way. "The question is where this industry is going to be over the next five to 10 years," said Keefe, Bruyette & Woods analyst William Hawkins.
Mr. Hawkins said firms generally are seeking out investments with greater risk and better returns. But there is a potential downside to committing to less liquid assets or those less easily sold for cash than bonds, he said: "Could the assets suddenly blow up? I do think at some point that could lead to some surprises."
Federal Reserve Bank of Boston President Eric Rosengren recently cautioned that low interest rates may be fueling a rise in commercial-real-estate prices, which could plummet and cause broader fallout if economic conditions change.
Pressure on insurers' profits has been behind a spurt of merger activity in the sector, which rose in value to roughly $111 billion last year from $64 billion in 2014, according to a report from Ernst & Young.
Last month, Allianz reported a sharp decline in profit for the first half of this year due in part to lower investment returns.
Allianz Chief Investment Officer Andreas Gruber said that about €90 billion ($100.4 billion), or 15%, of Allianz's roughly €600 billion portfolio is now dedicated to alternative investments such as real estate, and the firm aims to increase that portion to €110 billion or more over the next few years. Alternative investments, including real estate, totaled roughly €50 billion, or about 10% of Allianz's portfolio, as recently as 2012.
Recent deals include paying about $420 million for a 44% stake in 10 Hudson Yards, an office complex that Allianz described as being part of the biggest development in New York since Rockefeller Center, and snapping up an interest in the Colbeck's Corner wind farm in Texas, which can create enough power for roughly 64,000 homes.
Mr. Gruber said Allianz had been prepared for the need to shift focus. He described the strategy as: "Less liquid investments, yes; more complex investments, also yes; higher-risk investments, no."
Negative interest rates, a tool wielded by central banks in several countries, particularly in Europe, have created a jarring reversal. They have made borrowing cheaper-in some cases, even resulting in firms being paid to borrow-but also have made it more difficult for bond investors such as insurers to earn returns.
Insurers, collectively, are an investing behemoth. In Europe, their combined assets under management amounted to €9.8 trillion last year, an amount equal to 61% of the European Union's total economic output, according to industry group Insurance Europe.
One reason Allianz has been prodded to consider different investments, analysts said, is its exposure to the German life-insurance business, which features long contracts and guaranteed returns for customers.
Analysts said that helps to make Allianz emblematic of an element of the industry seeking to get more creative with investments, while Zurich Insurance represents the opposite end of the spectrum.
Zurich Insurance Chief Financial Officer George Quinn cautioned that getting creative might bolster insurers temporarily, but it also could cause fallout when conditions change. "The music stops, and you find yourself at peak asset risk," Mr. Quinn said. "As a sector, we really have to try and avoid that."
Zurich Insurance isn't immune to broader troubles for the insurance business. The company recently reported a 22% decline in first-half profit, even as it managed to improve its return on investments to 4.7% from just 0.1% in the same period last year.
Mr. Quinn said that if Zurich Insurance wanted to diversify, options for new investment areas for insurers generally can quickly become crowded.
"The insurance sector has such a significant capacity to invest, as soon as the industry picks up in a particular area, you see it tend to get squeezed," he said. The company has little interest in getting creative, he said.
"We would rather be recognized as a liability-driven investor [earning just enough to meet liabilities] rather than one harvesting cash to become some kind of hedge fund," Mr. Quinn said.