low interest blues

Where Are The Return Levers?

Life Insurer Investment Strategies Shift in Response to Continued Low Interest Rate Environment

HARTFORD, Conn., Nov. 7, 2016 /PRNewswire/ — The life-annuity industry has responded to the continued low interest rate environment in its investment strategies by shifting allocations, but is running out of levers to influence returns, according to a new study by Conning.

“Life-annuity insurers have lived with the decreasing interest rate environment for more than a decade, and for the past five years have been under increasing pressure as interest rates dipped to historically low levels,” said Mary Pat Campbell, Vice President, Insurance Research at Conning. “As interest rates remain so low, insurers have been shifting allocations to reach for yield. This shift was pronounced from 2011 to 2015, as the impact of the financial crisis faded and the bite of low interest rates intensified. The dominant industry response has been in shifting bond credit quality, as insurers increased allocations to BBB-rated bonds for extra yield, while at the same time keeping below investment grade allocations at historic lows.”

The Conning study, “Life Insurance Industry Investments: Where are the Return Levers?” analyzes life industry investments for the period 2011-2015 for the industry as a whole, by insurer size, and for five peer groups. The study combines a discussion of strategic issues facing the life insurance industry with a detailed examination of its investment profile.

As interest rates remain so low, insurers have been shifting allocations to reach for yield.

Risk/Return Equation

“As insurers take on additional risk to boost returns, there can be consequences of potential losses,” said Steve Webersen, Head of Insurance Research at Conning. “The shift to greater reliance on BBB-rated bonds is widespread over the industry, and represents a further credit risk concentration. This shift to BBB-rated bonds has performed well over 2011 to 2015; yet the question remains as to how long that performance can continue. Just as important, what investment return levers remain for the industry in the future?”

“Life Insurance Industry Investments: Where are the Return Levers?” is available for purchase from Conning by calling (888) 707-1177 or by visiting the website.




Conning is a leading global investment management firm with approximately $120 billion in assets under management as of September 30, 2016.* With a long history of serving the insurance industry, Conning supports institutional investors, including pension plans, with investment solutions and asset management offerings, award-winning risk modeling software, and industry research. Founded in 1912, Conning has offices in Boston, Cologne, Hartford, Hong Kong, London, New York, and Tokyo.
*As of September 30, 2016, represents the combined global assets under management for the affiliated firms under Conning Holdings Limited, and Cathay Securities Investment Trust Co., Ltd. (“SITE”). SITE reports internally into Conning Asia Pacific Limited but is a separate legal entity under Cathay Financial Holdings, Ltd. which is the ultimate controlling parent of all Conning entities.