Forecast for the Life Insurance Sector
The surge in interest rates to 15-year highs significantly improves the outlook for life and annuity insurance. The global life insurance industry today looks very different to 15 years ago.
Low interest rates from 2008 until the inflation surge after 2021 put huge strain on the traditional life insurance business model of using balance sheet leverage and investment income to deliver contractual promises to policyholders.
According to Swiss Re sigma 2/2024 Life Insurance & Retirement Savings, after over a decade of low demand due to low interest rates, profitability is recovering as higher government bond yields enhance investment returns and margins on life insurance products.
Life insurance stock market indices, which reflect profitability expectations, now outperform broader markets as investors acknowledge the benefits of higher rates. Long-duration business stands to gain the most in profitability over the long term due to compound interest.
Higher interest rates improve the attractiveness of saving products
Low interest rates had made life savings products less appealing. Real premium growth for savings business fell below global economic growth in the decade after the global financial crisis, averaging just 1.1% annually.
Swiss Re expect strong, annuity-driven growth in the life savings market as the interest rate reset makes savings products more attractive.
US fixed annuity sales are projected to reach a new record this year, following a more than twofold increase in 2023 compared to any previous year before 2022.
Life insurer operating results and investment return, key markets
This demand boost should help mobilize the substantial private savings needed to narrow the retirement savings gap between current pension assets and the amount required for secure retirements, according to Top Trends in the Global Life Insurance Market.
US individual annuities direct business, first year and single premiums
Swiss Re estimate the retirement savings gap for six advanced economies, China, and India at USD 106 trillion in 2022 values.
After less than USD 300 billion of premium growth from 2010 to 2019, Swiss Re predict life insurers will gain USD 1.5 trillion in savings premiums over the next decade, reaching USD 4 trillion by 2034.
Low interest rates handicapped the life insurance business model
The environment prompted stock insurers to shift from traditional business to capital-light, fee-based strategies to meet investor return expectations. Private equity firms absorbed the legacy assets divested via reinsurance. Mutual insurers pursued traditional business.
Publicly traded life insurers’ performance under low interest rates in the post-global financial crisis
Worldwide, insurers shifted into higher-yielding illiquid and alternative assets and extended the duration of fixed income portfolios.
US life insurance industry portfolio allocations
European life insurance industry portfolio allocations
Rising interest rates have transformed the competitive and operational environment for life insurers from one of low growth and low profitability to higher growth and higher returns, particularly for asset-intensive business
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FULL Report — https://beinsure.com/life-insurance-retirement-savings-boom/
