How US Life Insurance Rising Interest Rates Could Impact Investment Income in 2024

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In the realm of US life insurance for the year 2024, the landscape appears promising with the potential for increased investment income thanks to rising interest rates. However, there are also concerns surrounding the commercial real estate portfolios of insurers that investors will likely keep a close eye on.

Over the past few years, the 10-year Treasury yield, a key indicator for insurers’ new money yields, has been steadily rising. As of December 29, 2023, it stood at 3.88%, a significant jump from 1.63% at the beginning of 2022.

CreditSights analyst Josh Esterov highlighted that these new money rates surpass insurers’ portfolio book yields, presenting a favorable outlook for the industry in the medium to long term.

However, attention remains on life insurers’ commercial real estate holdings, especially following challenges faced by the office space market in 2023. Despite reassurances from company executives during earnings calls, concerns persist regarding potential exposure to commercial real estate issues.

Another aspect garnering attention in 2024 is the increasing private-equity investment into the insurance sector. The Financial Stability Oversight Council’s 2023 report highlighted the growing influence of new players like private equity and alternative asset managers, prompting calls for evaluation of their impact on systemic risk.

Additionally, developments surrounding a proposed fiduciary rule by the US Department of Labor will be significant for the industry in 2024. This rule aims to redefine investment advice fiduciary under the Employee Retirement Income Security Act and reduce investment “junk fees” paid by consumers for retirement products. Insurance industry trade groups have expressed strong opposition to the rule, citing existing regulations’ sufficiency.

Metlife emerged as the largest US-based life insurance company in 2023, despite experiencing a decline in stock performance. Other major players include The Northwestern Mutual Life Insurance Co., MetLife Inc., and New York Life, leading in terms of premiums.

Northwestern Mutual primarily generated direct premiums from individual life business, while Metlife focused on group life business. New York Life closely followed suit with significant direct life premiums.

On the annuity front, Athene Holding Ltd. emerged as the top writer in the US, experiencing substantial growth in annuity considerations. Massachusetts Mutual Life Insurance Co. and Corebridge Financial Inc. also reported noteworthy figures in combined direct individual and group annuity considerations.

Moody’s Investor Services classified the US life sector as “stable” for 2024, highlighting the positive impact of higher interest rates on portfolio yields and a robust sales pipeline for certain products like fixed-rate deferred annuities.

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