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Rising Rates Good For Life Insurer Portfolios

Rising interest rates have been largely good news for U.S. life insurer investment portfolios, Fitch Ratings reports. Higher rates are driving higher investment income as reinvestment rates exceed book yields, helping mitigate macroeconomic headwinds, market volatility and the heightened probability of a mild recession in 2023.

Insurers continued to increase exposure to less liquid, more esoteric asset classes, such as private placements and commercial mortgage loans, in search of yield and to capture illiquidity premiums during persistently low-rate environments, while maintaining 94% investment grade portfolios.

Improving investment yields largely benefit the industry, but rapidly rising interest rates can result in disintermediation risk that can trigger material policyholder surrenders and lapses if yields on existing portfolios lag those offered on noninsurance or new money products offered by competitors. While surrenders and lapses have increased YTD given the rising interest rates, the uptick has been manageable thus far and partially curtailed by surrender charges and market value adjustments.

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WHAT WILL IMPACT THE LIFE INSURANCE MARKET IN 2023?

Two issues impacted the life insurance industry in 2022 and will carry over into this year, said Rich Sega, global chief investment strategist with Conning. Those issues are:

- Global unrest. Geopolitical unrest and COVID-19 are impacting global trade. In addition to RussiaUkraine war, China’s COVID-19 lockdowns are disrupting the global supply chain, further contributing to inflation and weaker economic growth.

- COVID-19 lingers. Long COVID19 continues to challenge employees and drag on businesses, Sega said. He cited a Brookings Institute study that showed an estimated 3 million to 4 million Americans have long COVID-19, which represents a combined loss of anywhere from $170 billion to $230 billion in lost wages.

Several other issues are creating challenges as well as opportunities for the industry, Sega said. Those issues include the war for talent, the fight over data usage and the impact of climate change.

More Americans Want Open Dialogue Around Grief

The New York Life Foundation found Americans are growing tired of dis cussing death and loss. Yet 78% of respondents think more can be done to increase awareness of grief support services, and 68% would like a more open dialogue around grief in the U.S.

The study shows that individuals are growing more comfortable talking about death and loss, with 68% of respondents agreeing they can discuss these topics. By comparison, only 55% of adults said they’re comfortable having conversations about personal finance matters

Survey results show that few employers are doing enough to support their grieving workers and their managers, and that communication about bereavement resources and training needs to be improved in the workplace.

Source: Department of Veterans Affairs