Insurance investors delivered a clear verdict today: They’re a bit worried about how a severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) epidemic might affect health insurers, but they hate how interest rate cuts might affect life insurers.
The stock market as a whole had a terrible today, with the S&P 500 benchmark index falling 7.6%, based in part on concerns about the SARS-CoV-2 outbreak itself, in part on a war between Saudi Arabia and Russia over oil prices, and in part about what the oil price war might do to some low-rated oil companies’ ability to make payments to their bond holders.
Interest rates fell sharply around the time of the 2007-200 Great Recession and had been creeping up. The Federal Reserve Board then cut a key benchmark rate it controls half a percentage point six days ago, in an effort to calm the investment markets.
The new turmoil raised the possibility that the Fed might try to push rates even lower to persuade investors to stick with stocks.
Market analysts speculated today that the market turmoil might cause the Fed to push the benchmark rate it controls close to zero.
Life and annuity issuers hate low interest rates, because they depend heavily on investments in corporate bonds and other fixed-rate investments to generate much of the income that supports their products.