A Moody’s Investors Service study finds the property and casualty insurance industry’s investment portfolio well positioned for future success especially compared to other financial services sectors.
The firm’s U.S. P&C Insurance Company Investment Portfolios report said the industry’s investment portfolios are “generally conservatively positioned, with the level of conservatism increasing over the last year.”
It goes on to say that under several stress scenarios the industry investment portfolios can handle economic downturns with only a few experiencing any downgrades.
Paul Bauer, vice president and senior credit officer for Moody’s, said the stress analyses companies were subjected to were “pretty stressful” based on a severe recession with a slow improvement and severe recession with flat growth for years.
He said the stress test was based on about 60 companies in the Moody’s rating portfolio, which he said is a broad representation of the industry.
However, inflation could expose insurers to major concerns, the report noted, especially if a carrier must sell investment assets after a catastrophic loss and experience losses under that scenario.
Mr. Bauer said the picture is not clear which direction inflation will go, and that there is a substantial camp of opinion that feels the current recession could spell deflation.
“There is no consensus on where it will go in the next couple of years,” he said.
“We looked at several perspectives and think, from an investment management standpoint, the industry is in good shape,” Mr. Bauer observed.
The sector looks especially good when compared to the investment portfolios of life insures and banks, he noted.
“The key observation is that we [feel] companies are relatively well positioned and that the concern and risk are relatively limited,” Mr. Bauer remarked.
The bottom line, Mr. Bauer said, is that, “the property and casualty industry is in good condition; that is the important take away.”
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