Persistent low interest rates have been around far longer than most expected, and now there’s serious talk of negative rates. With the COVID-19 pandemic grinding on and uncertainty over when an economic recovery might arrive, the situation isn’t likely to change anytime soon. In fact, the Federal Reserve has now indicated that interest rates could be held near zero until at least 20231.
Major questions for life insurance carriers include: What impact will even lower—and possibly negative—rates have on the life and annuity sector? What changes can your company make to weather these conditions?
1. Jeanna Smialek, “Fed Pledges Low Rates for Years, and Until Inflation Picks Up,” The New York Times, September 16, 2020, accessed via Factiva, September 16, 2020.
For life insurance carriers, periods of persistently low returns place pressure on profitability and solvency positions. We see low and negative nominal interest rates affecting the US life insurance industry in the following five areas:
Richard de Haan
Partner and Global Actuarial Leader, PwC US
Partner, Life Actuarial Services, PwC US