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November 30, 2011, Cover Stories, Research

It’s a Twister, Auntie 'Ben'

By Kerry Pechter   Tue, Nov 08, 2011

U.S. life insurers can weather the impact of 'Operation Twist' for a few years, Moody’s Investors Service says. But another five-plus years of rock-bottom interest rates could damage profits and ratings.

“Operation Twist” and its monetary policy predecessors are keeping life insurers in a whirl.   

In just the past ten days, MetLife said it would lower the deferral bonus on its hottest living benefit rider, Sun Life Financial was placed under “negative watch” and American Equity Life, a big issuer of fixed deferred annuities, announced its first rate renewal reduction since 2007.  

A stream of similarly dismal announcements is expected in coming months as more insurers adjust to the impact of the Federal Reserve’s decision last August to keep interest rates, including long-term Treasury rates, suppressed until at least 2013.

Observers like Neil Strauss of Moody’s Investors Service don’t expect low yields to create an immediate crisis for life insurers. But companies will feel pressure as they scramble to either find ways to maintain profit margins by raising prices or reduce profit expectations.

“This is not a crisis, but there will be pain,” Strauss told Retirement Income Journal this week.

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