Wednesday, July 6, 2022

Life Insurance Companies Frustrated Over Low Interest Rates

While the Federal Reserve has said that interest rates should end up going up this year, each month that the agency has held policy meetings the decision has been not to change the interest rates. This has been an ongoing discussion since around March, when it was first thought that interest rates would be going up in June, although that did not happen due to uncertainty in the economy. After that, the Federal Reserve made it seem like it would raise the interest rates in the September meeting, although this also ended up falling through because between June and August China’s stock market took a nosedive, which was due to the slowdown economically in that country, and it led to global fears about what would happen if the Federal Reserve raised interest rates during the middle of that chaos.

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With good economic data coming in the past few weeks, it seems that December is going to be when the interest rates finally go up, but lost in all of this is the fact the life insurance industry’s assets are growing slower than in past years, and this is leading to some issues for life insurance companies. While the assets of the life insurance industry are indeed still growing, it is a lot slower, and the low interest rates have been frustrating nearly every insurer out there in America. These insurers are wary of using certain investments as a way to get more yield, mostly due to certain investments being favored right before the financial crisis back in 2008.

If you want to get into the specifics about how the low interest rates have affected the life insurance industry, then you might want to check out the annual industry analysis report, which was put together by Conning. Conning is an investment management company that is completely focused on the insurance industry, and the report showed that interest rates have not only slowed down the asset growth, but has also hindered a lot of the types of investments people were making, and also hindered the investments by the insurance companies themselves.

A few key highlights from Conning’s annual insurance analysis include the fact that investable assets for the life insurance industry have increased a little bit, but only 4 percent. The report is not saying that the insurance industry is struggling due to the interest rates, but the report is showing that the interest rates have definitely impacted the amount of growth and the types of investments that are leading to this growth. While you might not think 4 percent is a lot, it amounts to the investable assets growing to $3.4 trillion. Even though this is pretty good news for the insurance industry, 82 percent of the assets were put in bonds, which is about $2.8 trillion out of the $3.4 trillion.

The Conning report also showed that gross investment income has increased only 5.2 percent, which means that the gross investment income is now at $199.7 billion. When you look at the gross book yields, the gross book yields are down 8 points, which brings that to 4.98 percent of all investable assets. Looking at the insurance industry as a whole, the largest insurers account for only around 10 percent of the industry, but this small 10 percent group holds 85 percent of the investable assets. In terms of the smaller insurers, these companies only hold .1 percent of all assets, even though the smallest insurers are 40 percent of the total industry count.

Mary Pat Campbell, Vice President in Insurance Research over at Conning spoke about the annual report and what it means. Campbell said that the key focus for the life insurance industry’s investment portfolios for years has been about yield, and trying to get more yield. The issue with this is that the low interest rates, which have been going on for several years now, is actually changing the investment portfolios and what it is made up of. The allocations have had to be altered in order to get that higher yield, meaning insurers are moving from stocks to bonds because they are less volatile in the stock market.

 

Jeanne Rose
Jeanne Rose lives in Cincinnati, Ohio, and has been a freelance writer since 2010. She took Allied Health in vocational school where she earned her CNA/PCA, and worked in a hospital for 3 years. Jeanne enjoys writing about science, health, politics, business, and other topics as well.
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