Risker P/C Industry Investments Likely as Returns Taper Off: Conning

The property/casualty insurance industry could very well see pricing taper into negative territory in 2015. Faced with that reality, plus low interest rates, companies may find them selves forced to pursue riskier investments in order to generate more returns, Conning Inc. asserts in a new report.

Conning’s look at investment trends for the sector also anticipates sobering results in a number of other areas: slower exposure growth, more drops in book investment yields, and falling asset/premium leverage as surplus growth outpaces operating growth.

Here are some specific thoughts and predictions from Conning’s report:

• Reinvestments through the 2014 third quarter reflect a reduction of about 50 basis points in yield between expiring investments and new purchases. If investment rate trends hold up, this could be even greater at the end of 2014.
• Companies, faced with low interest rates, may seek a greater return by taking on more investment risk such as credit, duration or alternative investment classes. That’s not necessarily a bad thing, the Conning report said, because “investments that are riskier on a standalone basis actually may reduce overall economic risk, as diversification benefits between assets and liabilities are understood.”
• Confronted by new sources of capital, technology and regulatory pressures such as ORSA, the insurance industry is rapidly increasing its understanding of risk as well as the technology needed to better manage it.

Source: Conning