Market Research Report
How Has the Insurance Industry Dealt with Low Interest Rates?
|Published by||GlobalData||Product code||710724|
|Published||Content info||24 Pages
Delivery time: 1-2 business days
|How Has the Insurance Industry Dealt with Low Interest Rates?|
|Published: June 19, 2018||Content info: 24 Pages||
The insurance industry channels revenue from risk pooling services it provides to clients, and uses this to finance economic activity through investment in real and financial assets. The investment operations of insurers play an important role in overall financial performance. Some of the largest investment arms and groups in the world are associated with insurers. The importance of investing to insurers means they are affected by interest rates from the perspective of investment income. Interest rates also play a role in the discounting of liabilities, which also has a sizable effect on insurers.
Since the financial crisis, interest rates in the developed world have fallen to record lows, and this shift has put insurers' business model under increased pressure and scrutiny. A combination of institutional factors - such as a move towards central bank independence and the adoption of inflation and demographic factors - played a role in driving interest rates from before the crisis to much lower levels. A paper published by the Federal Reserve in October 2016 estimated that the changes in the demography of the US population since 1980 accounted for a 1.25% decline in the equilibrium real interest rate.
The financial difficulties posed by low interest rates to undiversified life insurers who have large exposure to guaranteed savings products has made them vulnerable targets for takeovers from more well-capitalized groups. There have been a greater number of reinsurance transactions and bulk annuity deals, as insurers look to reduce the financial burden. It has also engendered a widespread product shift within the life sector away from guaranteed savings products, towards protection products of unit-linked savings products which pass the investment risks onto policyholders.
The report, "How has the Insurance Industry dealt with low interest rates?", analyzes the impact and importance of low interest rates to life insurance and the strategies they undertake to shield themselves from such environments, thereby maintaining their profitability.