U.S. property/casualty insurers' municipal bond portfolios sound: Moody's

U.S. property/casualty insurers should be able to manage the risk presented by municipal bond exposures, rating agency Moody’s Investors Service Inc. said Thursday.

New York-based Moody’s said the domestic property/casualty industry holds about $355 billion in municipal bonds, which translates into 60% of its equity capital base. While insurers remain exposed to credit losses in municipal bonds, their overall risk is manageable, Moody’s said.

“In spite of pressures in the public finance sector, (property/casualty) insurers’ muni portfolios remain sound,” Paul Bauer, a Moody’s vp who wrote the rating agency’s property/casualty municipal bond exposure update, said in a statement concerning the analysis.

Low losses

“Under our baseline economic scenario, we estimate that muni bond credit losses will be low, at $500 million for the entire (property/casualty) industry, or the equivalent of a little more than 1% of last year’s net income,” Mr. Bauer wrote.

However, he also said that while property/casualty insurers’ exposure to municipal bonds has come down in the past year, it remains high. And insurers have material exposure to state and local general obligation bonds that originated in high-risk states, such as California and Illinois.

The update echoes the assessment Moody’s made in a November report in which the rating agency said insurers should be able to manage their municipal bond exposures.