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Member, Beacon International Group, Ltd.
NEW YORKMoody’s Investors Service said Monday that U.S. property/casualty insurers are not likely to sustain “substantial” losses on municipal bonds, citing concerns that have been raised about the investments.
While bonds issued by city governments make up a “high” 27% of property/casualty insurers’ invested assets, credit losses would be manageable “even under a severe stress scenario,” Moody’s said in a press release. The New York-based rating agency said it believes the property/casualty industry’s muni bond losses could be in the $2 billion to $4 billion range in such an environment.
Meanwhile, Moody’s expects investment income of more than $10 billion per year from the industry’s $370 billion muni bond portfolio.
“Numerous concerns have been raised about U.S. municipal bonds, and the potential impact that disruptions in the muni sector could have on P&C insurance company investment portfolios,” Moody’s analyst Paul Bauer said in a statement. “While recognizing that public finance in the United States is under strain, we nevertheless view P&C insurers’ muni bond exposure as manageable.”
Property/casualty firms have high exposure to bond investments, which have traditionally been considered more conservative than others such as stocks. Mr. Bauer said that property/casualty insurers have spread out their risk exposure to municipal bonds through diversification, and around three quarters of their investments have the highest quality ratings, Aaa or Aa.
“While recognizing that these insurers are not immune to market risk, they are nevertheless generally able to hold their bonds to maturity,” Mr. Bauer said in the statement.