Moody's: P&C Insurers' Investments Well Positioned

CHARLOTTE, N.C._Although some property-and-casualty insurance companies' investment portfolios have been affected by the credit crisis, Moody's Investors Service said the sector is currently well positioned to manage continued volatility in the markets.

Most insurers have manageable exposure to structured securities and high-risk asset classes, Moody's said in a report issued Tuesday.

"A cautious investment approach has meant that most P&C insurers have been able to operate through a very difficult investment environment without seriously compromising capital adequacy," Moody's senior credit officer Paul Bauer wrote in the report. "Based on our stress testing, we believe that the ratings of most P&C insurers can withstand further declines in investment markets without a downgrade."

Over the past year, insurers have been under pressure to maintain solid capital positions to avoid damaging downgrades by ratings agencies. Keeping high ratings is key for insurers because lower ratings can mean higher costs, and in some cases, even a loss of business.

Generally, companies have chosen to limit their volatility on the asset side of their balance sheets, largely because of the high risk levels on the liability side, given their exposure to insurance losses from events like hurricanes and earthquakes, Bauer wrote.

In fact, much interest rate risk has decreased recently through a shortening of the duration of bond portfolios, he added.

"However, there are exceptions, where the ratings of individual companies with higher-than-average levels of investment risk could be hurt by a material decline in investment markets," Bauer wrote in the report.

If that is the case, a few downgrades could occur, though the Moody's report did not name and specific companies.