Conning Research: Life Insurers Suffer Continuing Decline in Gross Investment Returns

Conservative Investment Strategies Avoid Potentially Higher-Yielding Schedule BA Investment Classes

(Hartford, CT) October 27, 2005 – Life insurers suffered a steep decline in gross investment returns over the last five years, led by falling interest rates as well as corporate defaults and rating agency downgrades in the early years of the period, according to a new study by Conning Research & Consulting, Inc.

Gross investment income returns for the period 2000 to 2004 dropped from 7.5% in 2000 to 5.9% in 2004. However, lower investment expenses somewhat cushioned the blow, improving each year during the study period.

The Conning Research report, “Property-Casualty Forecast & Analysis by Line of Insurance-Second Quarter 2005,” provides projections of key underwriting and financial results for the entire property-casualty industry as well as the major lines of business, including personal auto, homeowners/farmowners, commercial auto, workers’ compensation, commercial multiperil, general liability, non-proportional reinsurance, medical malpractice, fire & allied, and inland marine.

“As interest rates declined, insurers took a significant hit in overall return,” said George McKeon, analyst at Conning Research. “However, they sensibly looked for less expensive investment classes and made the appropriate shifts to help offset the decline in returns. Returns were boosted by locking in capital gains, particularly in the bond portfolio where they added more than 6% to the total investment income in 2004. One additional consequence was a continuing decline in average bond maturity. Surprisingly, though, we see very little usage of potentially higher-yielding Schedule BA investment classes at a time when gross investment returns are under such pressure.”

The Conning Research study, “Investment Profile of the Life Insurance Industry-2005 Edition,” examines statutory investment information over a five-year period for the industry and compares investment returns and sector strategies within each of the key investment classes.

“Our study looks at six distinct classes of insurers within the life industry,” said Stephan Christiansen, director of research at Conning Research. “While we found differing utilization of investment approaches, all experienced declining returns. In this environment, larger companies may achieve some economies of scale in expenses relating to certain asset classes, and they may develop competitive advantages in net investment yields.”

“Investment Profile of the Life Insurance Industry-2004 Edition” is available for purchase from Conning Research & Consulting, Inc., by calling (888) 707-1177 or by visiting the company’s Web site at

About Conning Research & Consulting, Inc.

Conning name has represented excellence in independent insurance industry research for more than 90 years. As a result of its wealth of experience and intimate knowledge of the insurance industry, Conning understands industry challenges and opportunities and can provide in-depth insights and analyses. Conning provides both public and proprietary research as well as consulting services to the financial services industry. Conning has offices in New York and Hartford.