Financial pressures produced by the COVID-19 pandemic have evolved into a longer-term concern for insurers' investment portfolios in what remains a volatile market.

After experiencing historic declines from late February through most of March, equity markets have since rebounded on the heels of multiple rescue packages passed by the federal government. Rich Sega, global chief investment strategist for Conning, said the market has "clawed its way back," but he believes the stock market turmoil is not over because the crisis is medical, rather than financial, in nature.

"We're still seeing emerging cases, so it's not going to be over as quickly as we thought it might have been a month ago," Sega said in an interview. "We still have the same problems, the compression for insurance companies anyway, for their investments."

Progressive Corp.'s March and first-quarter results provided a window into the depth of the pandemic's effects on insurers. For the quarter, the P&C giant recorded $553.6 million in net realized losses on securities, compared to gains of $414.5 million a year earlier. March alone accounted for $329.1 million of those net realized investment losses.

The low-interest-rate environment remains a problem, according to CFRA Research analyst Cathy Seifert. Even though insurers' stocks have rebounded from their lows, another potential correction could be looming later in the year, she said. One reason is that life insurers' underlying interest rate assumptions "almost across the board" are several hundred basis points higher than where interest rates currently are.

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"I don't think there's anyone out there that has an interest rate forecast that calls for interest rates climbing significantly over the next 12 months," Seifert said in an interview. "Many of these companies had interest rate assumptions that were too high going into this crisis. And with the latest [Federal Reserve] actions, it was the beginning of a slippery slope, and it has just accelerated downward."

The possibility of the central bank turning to negative rates to stimulate the economy would be a concern for Conning's Sega, who called negative rates "a disincentive to investment and capital formation, which are essential to rebuilding the productive side of the economy."

While the pandemic may be showing signs of slowing in the U.S., Sega sees the potential for stocks to test lows again when "the next layers of bad news on the virus" comes out, particularly from emerging markets. Many of those countries have yet to experience the full impact of the virus as compared to more developed nations.

"We're going to start hearing some bad news, and I think a lot of that news is going to drag markets down," he said. "It's the same pattern repeating itself."

The current investment environment stands in stark contrast to what Sega was anticipating at the beginning of the year when the markets and the economy as a whole were running smoothly. Now he wonders how long it will take to return to that environment and revive demand for insurance products.

"A lot of companies have gone from nicely cash-flow positive to potentially cash-flow negative," Sega said. "Not only does that change your corporate strategy, but it also changes investment policy and investment strategy. So that's a big change."