NU Online News Service, Aug. 19, 2003, 5:12 p.m. EDT – The increase in U.S. long term interest rates that began in June should save U.S. life insurers from the recent squeeze on interest rate spreads, according to an analysis released by Moody’s Investors Service, New York.
An interest rate spread is the difference between the rate that an insurer pays holders of a fixed-rate product and the rate that the insurer earns on the assets backing that product.
Rate increases might be hard on home buyers and homeowners with variable rate mortgage loans. But increases should help insurers increase the profitability of variable annuities, fixed annuities and other products designed so that earnings depend partly or entirely on interest rate spreads, Moody’s analysts write.
“If interest rates had remained at their recent lows or continued to fall, many annuity spread writers would have begun to experience a worsening decline in profitability and growth, thereby aggravating the pressure on their ratings,” says Robert Riegel, managing director of Moody’s life and health insurance group.