The ultra-low interest rates that exist at the moment are affecting insurance company profitability and operations.
On the profitability side, current policy premiums must be reinvested into bonds that have low yields and are fully priced.
Investment income and underwriting profitability (which is often rare) are the main components of insurance company profitability. As large fixed income investors, insurance companies are challenged in the current interest rate environment.
On the operations side, low interest rates are affecting product offerings in a number of ways.
For example, narrow interest spreads are causing many life and annuity insurance companies to scale-back on benefit features. These benefit changes can be seen in some of the current variable annuity and related living benefit offerings.
Fixed products with profitability contingent on interest rate spreads are also affected.
A recent Wall Street Journal article (subscription required) discusses the issue in detail and across different types of insurance companies.
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