The current economic environment is causing significant strain on the books of insurers.
Data from Towers Watson is showing that as the American interest rates have reached the lowest points that have been seen since the years following World War II, North American life insurance company CFOs – especially those that have the greatest exposure level to products with a fixed rate – are finding that this environment is weighing heavily on their finances.
The Life Insurance CFO Survey: Low Interest Rate Environment report was just released by the research firm.
It determined that 45 percent of the CFOs of these insurers feel that the prolonged period of lower interest rates is causing the greatest amount of damage among all of their business threats. Moreover, they are also not optimistic about the economic recovery within the near future.
In fact, 87 percent of the participants in the study stated that they believe that there is a likelihood of 50 percent or greater that they will experience a major economic disruption within the upcoming period of one year to a year and a half. Twenty seven percent stated that this likelihood was 75 percent or greater, while 7 percent feel that this economic circumstance is almost certain.
The execs do not feel that the interest rates will rise anytime soon in this economic environment.
Among the respondents, 68 percent expressed that they felt that the low interest rates would continue over a period of three to five years, and that after that point, they would likely raise gradually.
Then they were requested to gauge the risk exposure of their organization to the current interest rates, the greatest worry causing metrics of the CFOs were in terms of statutory capital levels (63 percent), with statutory earnings levels (53 percent) in second place.
Towers Watson senior life insurance consultant, John Fenton, explained that “Life insurers are adversely affected by low interest rates, in part, because of lower returns on their investments and previous guarantees promised to their policyholders.” He also added about the life insurance companies that “In addition, the low interest rate environment makes some of their products very unattractive in the marketplace, such as traditional fixed universal life and annuities.”
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