NU Online News Service, Nov. 16, 3:50 p.m. EST
Standard & Poor's said it does not expect rising interest rates to result in ratings changes for property and casualty insurance companies unless they decide to adjust their reserves.
The impact of rising interest rates "is probably muted for most insurers," S&P said in a recent report.
But the rating agency added, "To the extent that higher nominal interest rates are accompanied by expansions of higher inflation, [p&c] insurers might have to adjust reserves, which is something Standard & Poor's would monitor closely."
Insurers of long-tail lines, such as workers' compensation and other liability lines, could be more affected by rising interest rates because they are more connected to the legal environment--changes in laws or how they are interpreted--which could affect severity payouts.
Travelers, CNA and Liberty Mutual have extensive exposure to long-tail lines, but they "have had the opportunity to observe both the behavior and performance over many cycles and interest rate environments," and they each have diversified products lines including short-tail lines, such as property and automobile insurance.
S&P said life and annuity insurers typically have the highest interest rate risk. Property insurers tend to plan for the unpredictability of weather events and other catastrophes. The liquidity and operating cash flow will likely allow p&c companies to keep portfolios rather than liquidate following a rise in interest rates.
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