Low Interest Rate Environment

  • I work in the private client division at Merrill-Lynch.
  • How have we done during the past few years? Well, this year we expect to sell more than $2 billion in annuity products, and we expect to sell $50 million in annual premium life insurance: traditional life insurance, whole life, universal life, survivorship. This volume ranks us as one of the largest life insurance agencies in the U.S. We also have our own "private label" (if you will) life insurance company, which sells variable products as well as SPDAS. And we now rank as the 26th largest life insurance company in the U.S. by assets ($12 billion). So we have many clients who have bought insurance from us.
  • I'm going to speak about issues concerning traditional annual-premium life insurance or "universal life," not single premium whole life or "investment style" life insurance that you may associate with stock brokerage distribution.
  • Our real question then is, what will the long-term projected return be of these life insurance policies sold and of those sold in the past few years?
    • Obviously, you don't need me to tell you that policies sold in the 1980s will be less valuable. In other words, from a customer's perspective, they're going to cost more.
    • That's the bottom line for all these reasons.

--  John C.R. Hele

1993 - SOA - Impact of Low Interest Rate, Society of Actuaries - 32p

  • 2017 10 - BIS - Insurance supervisory strategies for a low interest rate environment - 29p
  • 2014 01 - NAIC CIPR - Newsletter
  • MetLife’s strategy of shifting our product mix toward less interest-sensitive products has helped mitigate the impact of a low-rate scenario.
  • However, if interest rates remain low indefinitely, it would likely be difficult to sustain our 2014 operating ROE of 12 percent over the long term. 
  • This is not a MetLife-specific challenge.
  • Maintaining current return targets in a long-term low rate scenario would likely be a challenge for most businesses, particularly those in the financial services industry.

2014 - MetLife Annual Report 

  • The low interest rate environment poses a significant challenge for life insurers with sizable blocks of liabilities incorporating embedded interest rate guarantees, such as annuities or universal life insurance policies.
  • The industry has reduced its minimum guarantees over time, but products sold when interest rates were higher represent a continue drag on profits.
  • The share of life and annuity product account values subject to a minimum guaranteed rate of return of 5 percent or higher fell from 20 percent to 10 percent over the 2006-2010 period, but more than 40 percent of account values were still subject to a minimum guaranteed rate of return of 3.5 percent or higher in 2010.

2012 - FSOC - Annual Report - 225p

  • Low interest rates reduced insurers’ profit margins on variable annuities with guarantees, long-term care insurance, and guaranteed universal life insurance. Product design changes to mitigate thinner margins have only somewhat helped. The negative impact on profit margins has required some insurers to absorb substantial charges to reserves, a trend that could continue absent an increase in interest rates.

2015 - FIO  or OFR ??