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Insurers' 'Flight to Quality' Investment Strategy Carries Risks of Its Own

Insurers and reinsurers are turning to high-grade government bonds as a response to economic turmoil in Europe, but as carriers look to reduce their exposure to sovereign default, they may be opening themselves up to interest and inflation rate risks down the road, a recent report says.

By Anya Khalamayzer | Updated on September 14, 2012

Insurers and reinsurers are turning to high-grade government bonds as a response to economic turmoil in Europe, but as carriers look to reduce their exposure to sovereign default, they may be opening themselves up to interest and inflation rate risk down the road, a recent report says.  

Insurance industry portfolio yields have fallen steadily from 2007 to 2012, hitting their highest mark at five percent in Q2 2007, but falling to less than half of that in Q2 2012. Yet, despite these low yields, Guy Carpenter says in a mid-year review that insurers are more conservatively invested now than at any time in recent memory, as heightened risk and uncertainty in some Eurozone countries has led to a “flight to quality” among insurer and reinsurers.

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