Chasing Yield Through BBBs is Hiking Insurer Credit Risk

January 23, 2020

Need for Income in Low-Yield Environment Causing Many to Add BBB-rated Bonds; Broader Diversification Might Be Wiser Choice


HARTFORD, CT – January 23, 2020 -Leading global investment management firm Conning has issued an Insurance Insight documenting the rise in BBB-rated corporate bonds in insurance portfolios. While the shift toward lower credit quality may help insurers pursue greater yields, it is also putting portfolios at greater risk during the later stage of the credit cycle. Conning suggests that improved portfolio diversification can help meet income needs and better manage portfolio risk.

Conning’s Insurance Insight “Chasing Yield Through BBBs is Hiking Insurer Credit Risk” illustrates that insurers across the industry have a rising exposure to BBB-rated bonds. The risk to insurers is a downgrade: a BBB bond (investment grade) falling to BB (below investment grade) would incur an NAIC risk-based capital premium that is three times as much. The report notes that the market has seen a similar credit event before, with a similar run-up in embedded asset risk: the 2004-2007 buildup of highly rated structured securities.

“The rising spread between industry yields and industry reference rates today suggests insurer portfolios again have embedded risk, although it appears to be recognized now where it had been hidden in the 2004-2007 scenario,” said Mary Pat Campbell, vice president in Conning’s Insurance Research group a report co-author. “The question is: are insurers being paid fully paid for this credit risk?”

Conning suggests that an effectively diversified portfolio can help insurers maintain yield while reducing potential credit-cycle impact. “We think that building a properly diversified portfolio requires a highly disciplined approach that accounts for an insurers business goals as well as its tolerance for risk,” said co-author Cynthia Beaulieu, managing director, portfolio manager and chair of Conning’s Investment Policy Committee.  “We also think insurers are best served in this matter by an asset manager with a broad range of investment expertise who can help limit portfolio reliance on any particular asset class or sector.”



Conning ( is a leading investment management firm with approximately $179 billion in global assets under management as of December 31, 2019.* With a long history of serving the insurance industry, Conning supports institutional investors, including pension plans, with investment solutions and asset management offerings, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America. 

*As of December 31, 2019, represents the combined global assets under management for the affiliated firms under Conning Holdings Limited, Cathay Securities Investment Trust Co., Ltd. (“SITE”) and Global Evolution Fondsmæglerselskab A/S and its group of companies (the “Global Evolution Companies”).  The Global Evolution Companies are affiliates of Conning.  SITE reports internally into Conning Asia Pacific Limited, but is a separate legal entity under Cathay Financial Holding Co., Ltd. which is the ultimate controlling parent of all Conning controlled entities


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