Interest rates and inflation pose the biggest long-term risk for US property and casualty insurers, according to reports by two ratings agencies.

Moody’s Investors Service VP Paul Bauer says while interest rates and inflation are currently at low levels, the heavy allocation to fixed income securities in most insurers’ portfolios poses a great risk.

But he says a cautious investment approach means insurers have been able to operate through a difficult investment environment without compromising capital adequacy.

“Generally, property and casualty companies have chosen to limit their volatility on the asset side of the balance sheet, largely because of the high risk levels on the liability side, given their exposure to insurance losses from events like hurricanes and earthquakes,” Mr Bauer said.

A Fitch Ratings report says while underwriting concerns for property and casualty insurers are numerous given competitiveness in the market, investment-related risk is also up there due to economic turmoil.

“Coupled with lower investment yields, further likely investment writedowns, and an anticipated slow economic recovery, the longer-term investment contribution to earnings is likely to be lower,” Fitch said.