The recent rise in interest rates is credit-positive for U.S. insurers, Moody’s Investors Service concludes in a new report.
In a July 15 “Special Comment,” the New York-based credit rating agency cites an 85 basis-point rise in the yield of 10-year U.S. Treasury bonds—to about 2.6 percent on July 11 from less than two percent in late April—as “positive” for U.S. life insurers.
“If this trend continues for a few quarters, combined with an improving economy, a revised sector outlook to stable from negative may be warranted,” the report states. “The low interest rate and weak macroeconomic environment are major contributors to our outlook change for the U.S. life sector to negative from stable in September 2012.
“Reinvestment risk, which has been stressed in the low rate environment, would be reduced,” the report adds. “Companies would be able to progressively increase their profit margins as both new money rates and portfolio yields would rise.”