The slumping stock market helped result in billions of dollars in investments losses and write-downs, resulting in concerns about insurers' capital levels and prompting credit-ratings downgrades.
In its report on P&C insurers' investment issues, Fitch found companies with the largest investment losses had above-average positions in stocks or asset allocations more typical of life insurers. Such companies held more mortgage and structured securities, which have seen their values tumble as delinquencies and defaults continue to mount.
Fitch noted that insurers have changed their asset allocation moderately, with fewer equity investments and more in short-term and cash holdings. That could reduce volatility on the bottom line. Coupled with more investment write-downs, lower yields "and an anticipated slow economic recovery, the longer-term investment contribution to earnings is likely to be lower," the ratings agency noted.
Fitch concluded that interest-rate shocks and high inflation pose the biggest long-term investment risk for property-and-casualty insurers. As such, greater uncertainty about investment results puts more pressure on the companies' underwriting profits, which themselves have been pressured to some degree by price competition.