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Conning, the investment management firm specialising in insurance and institutional investors, has published a new viewpoint examining how property and casualty (P&C) insurers are adapting investment portfolios as underwriting conditions become more competitive and the benefits from rising interest rates begin to diminish.

In The Next Differentiator: Investment Strategy in the Evolving P&C Market, Matt Reilly, Managing Director and Head of Insurance Solutions at Conning, states that investment strategy could play a larger role in differentiating insurer performance as market conditions evolve.

According to Conning’s analysis, the US P&C insurance sector entered 2026 from a position of financial strength following a period of strong underwriting performance, continued premium growth and higher investment income.

However, the company notes that pricing momentum has moderated in several lines of business, premium growth is slowing and reserve concerns remain in some casualty segments, creating a more challenging operating environment.

The Conning report suggests that while insurers continue to benefit from higher portfolio yields, the pace of improvement has slowed as market rates have become more range-bound. As a result, the company believes future investment performance may increasingly depend on decisions relating to asset allocation, sector selection and portfolio construction rather than broader market conditions alone.

“As market conditions evolve, investment strategy may become an increasingly important differentiator among insurers,” added Reilly. “Insurers today have access to a broader range of investment opportunities, creating new ways to enhance portfolio income, diversification, and capital efficiency.”

Drawing on its analysis of insurer investment portfolios, Conning identifies several changes in portfolio positioning across the sector. The company reports that insurers have increased allocations to cash and short-term investments in recent years, while gradually reducing exposure to lower-rated credit as higher-quality fixed income securities have become more attractive in the higher-rate environment.

The report also highlights continued growth in alternative investments and private market exposure. According to Conning, allocations to Schedule BA assets have increased over the past decade, reflecting insurers’ search for additional diversification and alternative sources of return beyond traditional public markets.

Structured securities represent another area of growing interest. Conning’s analysis shows that structured securities now account for a significantly larger share of insurer bond portfolios than a decade ago, with increased allocations to mortgage-backed securities and asset-backed securities. The company notes that insurers are also expanding exposure to collateralised loan obligations (CLOs) and other specialised sectors backed by a diverse range of underlying assets.

Private placements continue to gain traction among insurers of different sizes, according to the report. Conning states that adoption has grown among both large and smaller carriers as insurers seek differentiated sources of income and diversification within fixed income portfolios.

The report devotes particular attention to CLOs, which Conning describes as an increasingly important component of insurer investment strategies. The company’s research indicates that more than half of insurers with invested assets exceeding $100 million hold CLO exposure, with most allocations concentrated in highly rated tranches. Conning suggests this reflects a generally conservative approach to the asset class while allowing insurers to access additional yield opportunities.

Beyond traditional alternatives, Conning highlights growing interest in private credit and asset-based finance strategies. The company notes that insurers are increasingly exploring income-focused investments and insurance-oriented structures designed to improve capital efficiency and broaden access to private market opportunities.

According to Reilly, the investment landscape available to insurers has expanded considerably in recent years through the development of new structures, private market solutions and insurance-focused investment vehicles. Conning argues that these developments have made a wider range of strategies accessible to insurers of all sizes rather than only the largest carriers.

The report concludes that as investment opportunities become more widely available, competitive advantage may depend less on access to investment products and more on how effectively insurers implement strategies, manage governance processes and integrate investments within broader portfolio objectives.

Conning suggests that the insurers best positioned for future market conditions will be those able to balance risk, liquidity, capital efficiency and return objectives within a disciplined investment framework.

The post Conning report says investment strategy may become a key differentiator for P&C insurers appeared first on ReinsuranceNe.ws.

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