how do low interest rates affect insurance companies?

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how do low interest rates affect insurance companies?

In: Economics

2 Answers

Anonymous 0 Comments

Insurance companies are mandated by regulatory frameworks in many jurisdictions to hold certain types of instruments, many of which are debt based. So if a large share of your portfolio is in bonds, and those bonds yield less than what you planned, then you won’t be able to pay out all claims/your profit margins will be lower.

Anonymous 0 Comments

The business model of an insurance is to collect premiums today, invest them into very safe investments, and use the proceeds to repay anyone who may have a claim later. Very safe investments typically means investing in bonds. So when interest rates go down, insurance companies make less money on those bonds and thus they struggle.