NU Online News Service, Dec. 22, 2:22 p.m. EST

An examination of some of the top U.S. property and casualty insurers by Fitch Ratings has found Farmers Insurance, W.R. Berkley, Old Republic and Fireman's Fund will be the most affected by weak new money yields.

The impact of low interest rates on investment portfolios is being felt by P&C insurers as new money yields are less than yields of maturing bonds.

Fitch says the companies it identified could be most affected by these weak yields because they have a combination of high-maturing yields in 2011 and 2012, with a “sizable portion” maturing in the next several years.

Twenty-five of the top U.S. P&C insurers, as measured by fixed-income holdings, were examined by Fitch. The group represents about 58 percent of the industry's aggregate bond holds as of the end of 2010.

Bond-investment yields are at historic lows and Fitch says it expects the yield will continue to drop in the immediate term. Additionally, the maturing bonds in many companies' portfolios, which are now yielding between 4 percent and 6 percent, will be replaced with new bonds reinvested at much lower rates of 2-to-4 percent, Fitch says.

Assuming this reinvestment of maturing bonds in 2011 and 2012 at a median rate about 3 percent, the group of insurers would collectively see a $1 billion reduction in investment earnings.

Companies with the highest-maturing yields in 2011 and 2012, according to Fitch, are Cincinnati Insurance, Fireman's Fund, Auto-Owners, Erie Insurance,OldRepublic, W.R. Berkley, Liberty Mutual and CNA.

The lowest maturing yields belong to Allstate, Progressive, AIG, USAA and American Family—making them less susceptible to the impact of a decline in reinvestment yields, Fitch says.

Special Reports /

P&C Industry to Feel Varying Effects as Bonds Are Reinvested at New Rates

Related Stories

Recommended For You