Persistently low interest rates continue to depress life insurers' assets and investments, according to "Life Insurance Industry Investments: Under Pressure in 2011," a study from Conning, the global insurance industry investment management company.
"While most of the negative impacts of the financial crisis faded in 2011, the continued policy of low interest rates from the Federal Reserve took its toll on fixed income yield, and is now being recognized and responded to as a longer-term challenge," said Mary Pat Campbell, analyst at Conning.
The Conning study analyzes life insurance industry investments as a whole from 2007 to 2011, four underwriting market peer groups, details the industry's position at the start of 2012, and analyzes the effects of the prolonged low interest rate environment and other challenges that could influence insurers' strategic investment decisions.
The study found that in 2011, the life insurance industry mostly had recovered from the credit crisis of 2008 and 2009, as the credit environment improved and impairments on insurers industry’s balance sheet lessened. However, 2010’s modest increases in book yield reversed in 2011, and low-interest rates continue to weigh on fixed-income yields.
"On a positive note, insurers have worked hard in the aftermath of the crisis to rebuild capital positions and improve leverage," said Stephan Christiansen, director of research at Conning. "Additionally, many have repositioned their product portfolios to reduce risks in their liabilities going forward. Consequently, they have some room to take additional risk in pursuit of yield."
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