NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) today released its inaugural outlook report on the U.S. life insurance sector.
KBRA believes that the life insurance industry may be challenged in the near to medium term by key risk exposures such as interest-rate risk, credit risk and equity-market risk. The insurance sector is especially vulnerable to changes in the credit cycle. Like most financial institutions, the performance of life insurers is susceptible to swings in interest rates, market prices and the real economy. As stated in a previous KBRA comment, as 2015 concludes, a high level of market uncertainty exists as we await the impact of the Fed’s decision to raise rates for the first time in a decade and its potential impact on global economies.
In general, life insurers have been effectively managing through this challenging environment by reducing crediting rates to guaranteed minimums, maintaining sound asset/liability management, purchasing interest rate hedges, diversifying earnings sources and reallocating assets outside traditional fixed income securities. A key assumption is that rates will rise gradually, perhaps taking roughly a decade to reach normalized levels. KBRA notes that any meaningful departure from these assumptions is likely to impact financial results for insurers and can spur disintermediation.
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About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).