U.S. life insurers’ credit outlook in 2014: stable

The credit outlook for U.S. life insurers remains stable, according to a new report.

Standard & Poor’s discloses this assessment in a January 2014 report “Industry Economic and Ratings Outlook.” The report’s conclusions assume an improving economy, which could yield a “much-needed boost” to interest rates.

“So far, U.S. life insurers have maintained acceptable net interest margins amid the current low interest rates primarily through premium increases and by cutting the interest they credit to policyholder accounts,” the report states. Should low interest rates persist, such measures will become less effective because many blocks of business are already at or near their guaranteed minimum interest rates.

“Many life insurers have also looked to preserve investment yield by increasing allocations to less liquid (and in some cases high-risk) asset classes, including commercial mortgage loans, private placement bonds, asset-backed securities, and alternative investments,” the report adds. “Although such investments add risk to insurers’ credit profiles, the moves have been relatively modest to date and have not affected ratings.”