US insurers will see a 'modest' impact on their investment portfolios from the recent fall in the price of oil, according to a report from the capital markets bureau of the National Association of Insurance Commissioners (NAIC).
Since June 2014 the price of oil has slumped more than 50% from its peak of $107 per barrel, as a result of growing supply and sluggish global economic activity.
The report, entitled The Current Oil Shock: Modest Impact on Insurance Industry Investment Portfolios, uses worldwide oil-and-gas-related bond and stock exposure of $226bn at 31 December 2013 as the starting point for its assessment. Corporate bonds accounted for 88%, or $199.9bn, with the remaining $26.1bn consisting of common and preferred stock. Exposure to oil-exporting countries totalled $169bn, a portion of which overlaps with the oil and gas industry exposure.
However, the insurance industry's bond and stock exposure to the oil and gas sector accounts for only 4% of total cash and invested assets, and its exposure to oil-exporting countries for 3%, the NAIC report pointed out, and there is little exposure to other potential areas of oil price-related risk, such as municipal securities issued in oil-producing regions, or the bonds and stocks of financial institutions with heavy oil exposure.
The NAIC noted that Standard & Poor's, while expecting energy supply and demand to be more balanced by the end of 2015, anticipates crude prices to remain relatively low in the intermediate term, because of economic and supply factors.
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