A.M. Best Special Report: Low Interest Rates Remain Leading Insurance Industry Concern, Survey Finds
October 7, 2014 by Best's News Service
Oldwick – The persistent low interest rate environment remains at the forefront of insurers’ concerns, based on a new A.M. Best survey, titled, “A.M. Best Summer 2014 Insurance Industry Survey.” In this Best’s Special Report, the view on when and if rates will climb varies by segment and company size. In response to the interest rate environment, companies have a wide array of asset allocation strategies to stave off declining portfolio yields, most of which involve some trade-off of liquidity and credit quality. The survey also asked companies to identify how they planned to invest new money in 2015, and alternative assets also were viewed in terms of investment perspective and ownership impact.
Going forward, A.M. Best will be conducting these industry surveys quarterly. “We decided to undertake a quarterly survey process where we could reach out to insurers and ask them what’s on their mind with respect to some of the more pressing areas they are facing,” said Assistant Vice President Ken Johnson. “We felt we got a very strong participation rate, and companies should be looking for our fall survey shortly.”
Other survey results include:
- Interest Rate Outlook: Using the 10-year Treasury bond as a proxy, nearly half of the respondents predicted interest rate yields would rise to 2.50% or higher in the final quarter of 2014; however, for 2015, there is a fall-off in insurers that think the 10-year yield will remain below 2.50% and a significant increase in those expecting it to exceed 2.75%.
- Asset Allocations: For investing in 2015, overall, 17.2% said they favor securities rated investment grade (NAIC 2), with common stock the preference for property/casualty companies and commercial mortgage loans the preference for life/annuity companies. Interest in alternatives continues to grow for all segments as well.
- Liquidity Positions: On companies’ liquidity positions today compared with the financial crisis of 2007-2008, 48.6% of all respondents believe that they have more liquidity today while 45.2% believe they have the same amount.
- Enterprise Risk Management (ERM): With just 28.2% of respondents subject to Own Risk Solvency Assessment filing requirements, the survey asked the remaining respondents what other form of ERM processes they were implementing. Just less than 7% acknowledged that they perform no formal ERM at all.
For a full copy of this special report, please visit: http://www3.ambest.com/bestweek/purchase.asp?record_code=229377.
This Best’s Special Report originally appeared in the Sept. 29, 2014, issue of Best’s Journal.
Best’s Journal is available exclusively as part of a subscription to the Best’s Insurance News & Analysis service, and is delivered every two weeks as a bound, printed publication and in digital format via the Best’s Insurance News & Analysis website. Each issue is an installment in a cumulative business resource that provides insight from A.M. Best’s perspective as a credit rating agency, data provider and news publisher with a unique focus on the insurance industry.
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