Insurers need to brace for lower investment income and a “stubborn” commercial lines market in FY17, according to Credit Suisse.

A report last week from the financial services company highlights the earnings sensitivity of bond yields, with the benchmark 10-year Australian Government bond yield hitting its lowest-ever level two weeks ago.

Credit Suisse identifies QBE as the most exposed, with around 65% of its earnings coming from investment income.

“While its asset mix split is roughly 30% US and 30% Australia, the actual investment income is heavily dominated in Australia,” the report says.

The report says insurers are currently riding the “tailwinds” of reinsurance savings, positive personal lines pricing and a benign period of natural catastrophes, but warns that “headwinds” are looming.

Because it has no offset outside general insurance, IAG is more exposed than Suncorp, which operates across life insurance, investments and banking.

The report says a 50 basis point decline in IAG’s investment yield would negatively impact its FY17 earnings and dividend by around 7.5%, whereas the decline for Suncorp would be in the order of 4%.

The same decline for QBE would negatively impact its FY17 earnings and dividend forecasts by around 12%.

Based on current share prices Credit Suisse says its preferred investment across the insurance sector is (in order of preference): AMP, Suncorp, IAG, New Zealand general insurer Tower, Steadfast, QBE, health insurers Nib and Medibank Private, and AUB Group.