Irish life insurance firms ‘least exposed’ to interest rate risk

Life insurance companies in Ireland are among the least exposed to interest rate risk, according to Moody’s Investors Service.

The ratings agency reviewed 21 large life insurance markets and classified them according to their vulnerability to low interest rate risk.

It found that life insurers in Germany, the Netherlands, Norway and Taiwan are amongst the most exposed to interest rate risk, while companies in Australia, Brazil, Ireland, Mexico and the UK are the least exposed.

Moody’s said insurers’ investment returns will continue to fall for many years in most of the world’s economies due to the sustained low interest rate environment, hurting insurers’ profits and increasing the risk of losses and capital declines for life insurers offering guaranteed rates.

"We expect global interest rates to remain low by historical standards, so new money and maturing assets will be reinvested at yields that are lower than current portfolio yields. As a result, life insurers' investment returns will continue to decline for many years," Benjamin Serra, Moody's senior credit officer and co-author of the report, said.

Moody’s said insurers are acting to counter the risk of low interest rates, particularly by lowering credited rates on in-force policies and reducing guarantees on new business. They are also changing their business mix by diversifying into health, protection, unit-linked products or asset management, and modifying their asset allocation. Some of them are hedging interest rate risk through derivatives.

“Insurers are in very different stages of implementation of these measures. In Japan, insurers have lowered credited rates, lowered guarantees on new business and diversified into health/protection with relative success in many cases,” Mr Serra said.