Issues facing the life & annuity market: Low interest rates

Written by: Ron Scheese

The life insurance and annuity industry is rife with difficulties. From regulatory hurdles to economic realities, roadblocks to success are seemingly everywhere.

At Andesa, we’ve been serving the needs of leading carriers and producers for more than 30 years. Over that time, we’ve learned to identify the most prominent challenges facing the industry – and help our clients overcome them. This is Part 1 of a multipart series; check back soon for more.

It’s no secret that interest rates are sitting at historically low levels – and will remain there for the foreseeable future.

Likewise, it’s no mystery that this low interest rate environment presents a number of challenges for life insurance and annuity carriers. Insurers are often subject to extreme levels of interest rate risk, due largely to their dependence on fixed-income assets. With treasury bonds yielding less than a point, it’s increasingly difficult to provide contracted yields to holders of policies with guaranteed cash value components. This factor – and more – has resulted an increased risk of disintermediation, credit spread risk and additional reserve risk.

The upshot of this rampant core earnings spread compression has been a focus on efficiencies. Carriers have reacted to the environment by finding new and innovative ways to reduce costs and enhance enterprise risk management.

How can Andesa help?

Of course, no third-party administrator can make interest rates higher or improve current spreads. What a trusted TPA partner can do is provide well-defined costs of ownership and reduce time to market for new, more fruitful products as well as adjustments to any existing products we service.

Carriers and producers utilizing Andesa’s integrated, cloud-based policy and plan administration services are presented with incremental, predictable administration costs. This minimizes a potential element of volatility for the carrier, allowing for increased focus on other elements of an enterprise risk management strategy.

In addition, carriers are also focusing energy on developing product variations with more favorable reserving requirements, like indexed UL and VUL. Once such products are developed, it is critical that they come to market speedily. An experienced partner like Andesa can help remove the hurdles between development and market, allowing carriers to reap the rewards of new products quickly.

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