P/C Book Yields, Surplus May Slip
Further Due to Pandemic Fallout
The pandemic continues to impact events far and wide, and Conning expects it will also lead to even lower projected book yields for property-casualty insurers and may further pressure their statutory surplus levels.
While markets have recovered from the March nadir, the future of interest rates may be lower for longer (again), potentially reducing portfolio income. In addition, Conning’s study suggests that downgrades to bonds currently rated BBB could be as much as 20% higher than average during the next two years. Carrying those bonds at the lower of book or market value could impact statutory surplus.
The pandemic was unexpected and may spur some insurers to revisit their risk tolerance. Conning suggests insurers consider scenario planning – stress testing portfolios against historical market downturns – to help them better prepare whatever may come their way.