• Blog
  • 3 Min Read
  • September 9, 2015

The Future of Interest Rates

Written by:
The Clearwater Team

More than 440 insurance accounting and finance professionals from a wide variety of insurance companies participated in The 2015 Insurance Investment Benchmark Survey, conducted by Clearwater Analytics. The survey inquired about the common challenges insurance investment professionals face and examined the industry-wide causes of these problems. In this benchmark survey blog series, we present some of the top findings.

Interest Rate Predictions

A key section of The 2015 Insurance Investment Benchmark Survey focused on the challenges that keep investment teams up at night, and what they predict for the rest of 2015. Thirty-one percent of investment teams are concerned about interest rates: their impact on portfolio yield, their instability, and the burden of low-interest incomes. This is not surprising, as low interest rates have had a notable impact on many segments of the economy, and an extraordinary impact on insurance. Interest rates were second only to concerns about yield/return; in fact, it could be argued that since interest rates impact yield, the high interest rate concerns play a significant factor in the yield/return concerns.


The NAIC says the following about interest rate risk:

Life insurance companies face considerable interest rate risk given their investments in fixed-income securities and their unique liabilities as their assets and liabilities are heavily exposed to interest rate movements. Interest rate risk can materialize in various ways, impacting life insurers’ earnings, capital and reserves, liquidity and competitiveness … Life insurers’ earnings are typically derived from the spread between their investment returns and what they credit as interest on insurance policies and products. During times of persistent low interest rates, life insurers’ income from investments might be insufficient to meet contractually guaranteed obligations to policyholders which cannot be lowered. [emphasis added]1

Of course, Life aren’t the only insurers impacted. As discussed in the Wall Street Journal, persistently low interest rates combined with a highly competitive insurance market make it difficult to raise policy prices to cover investment shortfalls.2
Although interest rates remain low, insurance investment teams’ optimism is high: 83% predict that interest rates will increase in a year, while 96% predict that they will increase in 1-3 years, and another 96% predict that they will increase in 3+ years. Compare these results to last year’s survey report, where 23% predicted that rates would increase in a year, 62% predicted they would increase in 1-3 years, and 80% predicted it would take 3+ years, and it’s clear that insurers are feeling hopeful that positive changes are on the horizon.


That optimism flows through survey respondents’ predictions of how much rates will increase as well. Of those who think interest rates will increase within a year, they predict those rates will go up by at least .32 percentage points. For predictions of 1-3 years, expected increase is about 1.06 percentage points, and long-term increases were predicted to be about 1.75 percentage points higher.


How Will this Impact Insurers?

If these predictions are accurate, they will significantly impact insurers’ portfolio performance and future planning. For most insurance firms, higher interest rates will likely bolster confidence in the sustainability of their current long-term investment strategies, and open up new investment possibilities.3
Long-term planning is an integral part of insurers’ investment strategy, and these industry predictions indicate that rising interest rates should be factored into that preparation. An automated investment accounting and reporting solution that instantly reacts and adjusts to new or shifted initiatives can facilitate more precise and adaptable long-term planning, and should be a key component to any firms’ investment strategy.
The complete 2015 Insurance Investment Benchmark Survey Report is now available for download.


  1. http://www.naic.org/cipr_topics/topic_low_interest_rates.htm
  2. http://www.wsj.com/articles/SB10001424052748704405704575596932278239578
  3. https://www.kitces.com/blog/how-rising-interest-rates-will-impact-far-more-than-just-the-bond-portfolio/

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