AM Best: Low Interest Rates Challenge Life/Annuity Writers (AM BestTV)

In this episode of ^AMBestTV, Associate Director Jason Hopper and Financial Analyst Igor Bass, both of AM Best, said economic turmoil from the COVID-19 pandemic is creating new challenges for life/annuity writers. Click on http://www.ambest.com/v.asp?v=interestrates820 to view the entire program.

Hopper outlined the steps that the life/annuity insurers have taken to de-risk their portfolios, while also describing some of the differences between interest-sensitive companies and non-interest-sensitive companies.

“The goal of the AM Best report was to see how investment strategies among these two groups have diverged,” said Hopper. “The report split the insurance industry into two camps based on product profiles and reserves in premium mix. Interest-sensitive companies are primarily individual or group annuity writers, deposit-type contracts or interest-sensitive life products, as defined by the NAIC. The results from the report were that there are twice as many non-interest-sensitive companies as interest-sensitive ones. However, interest-sensitive companies command about three-quarters of the total industry's assets.”

Bass addressed to what extent operating results vary between the two groups.

“Interest-sensitive companies only represent a quarter of the population, but generate a majority of the earnings. The pretax and operating earnings have been consistent for the most part with these companies, albeit with more fluctuation, over the last 10 years, but they are still positive. Additionally, yields for interest-sensitive companies have been declining over the last couple of years, more so than for non-interest companies. However, interest-sensitive companies have a tendency to reach for the higher yield, which results in more risk in their portfolios.”

To access the related special report, titled, “Interest Rates: Different Impact Severity, Different Strategies,” please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=299809.

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^AM BestTV covers exclusive AM Best and insurance industry information and reports, targeted topics and key developments in the insurance, reinsurance and related sectors daily. Sign up for alerts of episodes at www.ambest.com/multimedia/ambtvsignup.html. View ^AM BestTV episodes at www.ambest.tv.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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