Among them was a Wall Street Journal article published on Nov. 22, titled “State of Alert for Insurance Firms,” which compared muni values for several large p&c insurers to shareholders equity, putting levels for W.R. Berkley, Travelers and Chubb over 100 percent. The article suggested the exposure could be “troublesome” or even disastrous if an investor sell-off of muni bonds did not reverse or if emerging problems in the muni markets marked “the onset of structural deterioration” arising from deep fiscal problems.

“It’s something we have clearly had to deal with” in research, said Mr. Dowling, noting that seven companies in his investment coverage universe have more than 100 percent of their capital in municipal bonds. “So to the extent that there is a problem, they’re going to have an issue.” It is a “big slug” of the invested assets for U.S. p&c insurers, he said.

But Mr. Dowling also said he was comforted by information in the investment schedule (Schedule D) of insurers’ annual statement filings with regulators, which showed that “companies seem to do a pretty good job—at least the big companies—of differentiating” between states and between the general obligation bonds and revenue bonds for individual municipalities.

“When you have a large p&c company that has 25 analysts that do nothing but try to pick out the right municipal bonds, you could have an overall problem [in the investment community], and that company will do a better-than-average job.”

He added, “I would feel more comfortable with the large holders than a small Midwest mutual that might be getting its municipal [bond] selections directly from one investment advisor,” he said.

In a report published this earlier week, I.I.I. Chief Economist Steven Weisbart also addressed worries about falling muni-bond prices and potential default risks, first differentiating between general obligation bonds and special revenue bonds. While the latter are secured by defined revenue streams, such as revenue from toll roads or for operating a hospital, the general obligation bonds—issued by states, cities and political subdivisions for borrowing purposes—are “secured by the full faith and credit of the issuer[s].”

The timely payment of principal and interest, he said, might indeed be affected by revenue shortfalls or expense surprises to local governments.

Mr. Weisbart also noted, however, that most of the muni-bond investments of p&c insurers are special revenue bonds.

• He noted that state, local and special revenue bonds represented only about 36 percent of insurers’ $1.2 trillion of invested assets (based on year-end 2009 figures).

• In addition, he said that muni-bonds accounted for less than half—48 percent—of insurers’ bond portfolios, with more than one-third allocated to industrial bonds and 16 percent to U.S. government bonds.

• Breaking down the 48 percent in muni-bonds, he said that 31 percent of overall insurer bond holdings were in special revenue bonds, with the other 17 percent coming from general obligation bonds for political subdivisions and state and local governments.

Separately, this morning, analysts at Keefe Bruyette & Woods, in a preview of fourth-quarter earnings for the p&c industry, said that a 5 percent drop in some muni-bond indices in the quarter could erase book-value growth from earnings for some p&c insurers.

“We do not expect the impact of the sell-off to be evenly spread for all with exposure, as the municipal bond market is highly diversified by geography, rating, level of government issuer and form of revenue,” the investment firm added, consistent with the other experts’ views.