Sinking Yields Drag Investment Income to 12-Year Low at Insurers

  • Annualized yield of 2.9% compares with 10-year average of 3.8%
  • Insurers ‘very challenged’ to match historical returns

U.S. property-casualty insurers’ quarterly investment income dropped to the lowest since 2004 as falling bond yields pressured the industry.

The figure fell to $10.9 billion in the three months ended March 31 from $11.7 billion a year earlier, according to a report Thursday from the Property Casualty Insurers Association of America and ISO, a unit of Verisk Analytics Inc. The annualized yield on the industry’s portfolio fell to 2.9 percent from 3.1 percent. That compares with an average of 3.8 percent over the past decade and peaks of more than 8 percent in 1984 and 1985.

Sinking interest rates add to pressures for companies such as Travelers Cos. and Allstate Corp., which are also confronting higher-than-average natural disaster costs and the increased frequency of car accidents as low fuel prices encourage motorists to drive more. First-quarter net income for the industry fell to $13.3 billion from $18.1 billion a year earlier, a decline of 27 percent.

“Insurers will be very challenged to reach long-term historical returns in the current hyper-competitive market,” Robert Gordon, a senior vice president at the insurers’ association, said in a statement.

Still, P&C insurers have it easier than life insurers, which can hold premiums for decades before paying claims, making them even more vulnerable to low interest rates. The S&P 500 Life & Health Insurance Index has declined 2.9 percent this year as of 12:13 p.m. in New York. That compares with the 9 percent gain of the S&P 500 Property & Casualty Insurance Index.

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