Swiss Re: Era of high interest rates is the "golden age" for life insurers

“We are entering a golden age for life insurance savings products,” said Jerome Jean Haegeli, group chief economist at Swiss Re Institute, in its latest sigma study. “This is fantastic news for insurance companies and consumers alike who want, and will need, to prepare for retirement.”

The study, “Life insurance in the higher interest rate era: asset-savvy is the new asset-light,” forecasts that the current period of higher interest rates will significantly strengthen life insurance profitability. After a decade of low rates and demand–2010 to 2019 interest rates averaged 1.1% annually and saw only $100 billion in premium growth–Swiss Re predicts that life insurers will see $1.5 trillion of savings premiums from 2025 to 2034. Researchers predict a 40% rise in insurers’ investment income in the largest life markets over the five years leading up to 2027, which is driven primarily by higher bond yields. 

As interest rates surge to 15-year highs, consumer concerns over retirement savings rates grow as well. Now, more consumers are opting to purchase life insurance to achieve higher retirement savings, hoping to secure savings that will better match their needs. Life insurance products, like annuities, play a pivotal role in the private savings market, according to Swiss Re. In 2023, fixed United States annuity sales were more than doubled when compared to any other year prior to 2022. On a global scale, experts estimate savings premiums to reach $4 trillion by 2034. 

This growth in the life and annuity market will also fuel market competition–especially for asset-based businesses.  In previous years of low interest rates, Swiss Re estimates that private equity firms entered the life market and acquired many annuity books assets, owning about 25% of the U.S. annuity liabilities business. 

Now, with surging rates and demand for life insurance products, private-equity-owned insurance firms are seeing more competition with insurer-owned asset managers. According to Swiss Re experts, this is growing assets and management capabilities across the industry.

Because of this rapid growth in market competition, consumers will also have more choice in life insurance products. Swiss Re experts forecast U.S. fixed annuity sales to reach a new record in 2024. 

An Economic Insights recent publication, “Competing for assets,” authored by Swiss Re senior economist James Finucane and economist Loïc Lanci, expands on this point, attributing asset management capabilities and attractive product offerings are major differentiating factors among competition. 

“With higher rates today, competition between insurance companies to acquire and grow their assets, either through new business sales or acquiring blocks of assets from sectors such as pensions, is intense. Investment capabilities and core offerings will likely determine who gets ahead. If competition remains rational, it should benefit consumers who should receive more attractive crediting rates and diverse new offerings,” the researchers wrote in the blog post.

In the period of lower rates, larger insurance groups built “sophisticated asset management divisions, including expertise in private asset origination, and expanded their investment-linked product offerings in which policyholders bear more of the investment risk,” the experts shared. Leveraging asset management capabilities for re-risking products is crucial, according to Swiss Re, in obtaining more assets. 

The experts also emphasize the significance of increasingly competitive insurance offerings.

“Attractive and competitive product offerings will be a second differentiator. In the US, higher rates supported a rotation from variable to fixed savings products in the past two years,” Finucane and Lanci wrote. “The next phase, if rates stay elevated, is likely to be the re-risking of products, but insurers are being patient and cautious.”