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Interest Rates Challenge Life Insurers

A rapid rise in or sustained low interest rates can be a challenge for insurers and especially life insurers, says Swiss Re study. ‘Facing the interest rate challenge’ explores how interest rates affect insurers and why low interest rates are particularly strenuous. It says as large investors, insurers are all impacted by interest rates. Interest rate sensitivity varies greatly by line of business and market. For life insurers, interest rates primarily affect savings products, where investment income is a key source of profits. As well, non-life insurers could react to declining interest rates by raising premium rates to restore profitability. For many life insurers, solutions to low interest rates are limited because policy terms for in-force business with generous and rigid guarantees cannot be changed. However, life insurers can optimize their asset management, hedging, and operational costs. They can also offer to exchange existing policies for new products that offer similar benefits, but are easier to hedge.

Courtesy of Benefits and Pensions Monitor website News Alerts

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