Assessing the Impact of Low Interest Rates on Life Insurance Products

Generally speaking, interest rates have been on the decline for more than 30 years. More recently, events of the financial crisis, which began in 2008, have contributed to this decline:

  1. The Federal Reserve responded to the crisis by suppressing interest rates in order to spur economic growth; and
  2. Investor demand for the relative safety of fixed income investments like U.S. Treasury and high-quality corporate bonds has increased, driving prices up and yields down.

Interest rates have a direct impact on life insurers and the products that they issue and manage. Companies generally make profits from the spread between what they earn on their general account portfolios and what they credit as interest on insurance policies. Policyowners are impacted as low interest rates result in lower investment returns credited to policies over time.