Near the end of each calendar year, mutual insurance companies declare their dividend interest rates on participating whole life (WL) insurance policies for the following year. Below are the 2015 declared dividend interest rates (DIR) of the four largest issuers of participating WL policies, as taken from the carriers’ own publicized dividend announcements:

• Guardian Life Insurance Co. of America 6.05% (down from 6.25% in 2014)
• Massachusetts Mutual Life Insurance Co. 7.10%
• New York Life Insurance Co. 6.20% (up from 6.00% in 2014)
• Northwestern Mutual Life Insurance Co. 5.60%

This M Intelligence piece provides information on the elements that drive changes in DIRs—as supported by historical DIR results, insurance company asset allocations, and investment returns—for the four major mutual life insurance companies.

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.