Higher interest rates will “significantly” boost profitability in the life insurance market, research from Swiss Re has argued.
The research, ‘Life Insurance in the higher interest rate era: asset-savvy is the new asset-light’, forecasted an additional $1.5trn in global insurance savings premiums over the next decade.
It attributed this to consumers moving to buy life-savings products that secure higher retirement incomes.
As a result of this, total global premiums are forecast to grow to $4trn by 2034 while, in contrast, global life insurance premiums grew by only $300bn in the entire low interest rate decade of 2010 to 2019.
Swiss Re group chief economist, Jérôme Jean Haegeli, said: “Higher interest rates are a game changer, providing life insurance and pension products a tailwind to much better tackle the retirement savings challenges of normal ageing demographics.
“Savings products are attractive again as a direct consequence of normalising interest rates.
“Higher investment yields also benefit long-duration pension products.”
Swiss Re CEO of life and health reinsurance, Paul Murray, added that higher interest rates will give consumers “more attractive options” to secure their retirement income.
“Higher interest rates also allow insurers to meet their cost of capital,” he continued.
“Reinsurers can furthermore support life insurers by freeing up capital, boosting underwriting capacity and focusing on product innovation for capital-life growth.”
The research also found significantly higher government bond yields are improving life insurers’ investment returns and margins for fixed annuities.
Between 2022 and 2027, Swiss Re forecasted the operating result for insurers in the largest eight life markets worldwide, which includes the UK, to rise by more than 60 per cent as investment income rises by 40 per cent.
The report additionally outlined the structure of the current life insurance industry, analysing how listed insurers, mutual insurers, and private equity- owned business have reacted to a decade of low interest rates.
It found insurers are expanding their asset management capabilities to grow their savings business, and private equity investors bring extensive asset management capabilities.
Swiss Re also anticipates competition on asset management in life insurance with, for example, large insurers acquiring private credit companies, and asset managers potentially acquiring insurance companies.
Consumers should benefit from this environment through more attractive returns.
tom.dunstan@ft.com
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