Most life insurance firm CFOs expect barely visible interest rates for several more years - not...

Most life insurance firm CFOs expect barely visible interest rates for several more years - not good when your business model depends on a healthier rate of return. The question is, first, how are they preparing for this environment, and second, are they protected if wrong and rates instead rise sharply?

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  • bamboomaster
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    While I could be wrong, I've paid attention to MFC for over a decade and listened not only to their conference calls but also what wasn't said:


    1. MFC is hedging its positions, but not fast enough for according to them, it doesn't make sense to do it at unfavorable prices (where you essentially lock in your loss and wish you had done more hedging, albeit at a cost, when market conditions were more favorable).


    2. The actuarial industry is in large part to blame for using the 8% interest rate for their projections about downstream pay-outs. In a few short years, it may appear as if a 3% rate of return may have been overly optimistic.


    3. As many other firms who have been saddled with less than historic rates of returns, they appear to be hoping that their ability to influence the political process (more specifically, those who write and pass laws), may provide them with a silver bullet of sorts that mandates annuity and life insurance holders to agree with a more current set of expectations, irrespective of any initial assumptions.


    All of this is just my opinion, but I would think that some of these issues are keeping folks who get paid the big bucks up at night.
    20 Jun 2012, 12:50 PM Reply Like
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