5 Factors Shaping Life and Annuity Providers' Q2 Performance

What You Need to Know

The companies that promise to protect your clients against death, disability, long-term care risk and longevity risk faced a storm of lemons.
Market-shaping factors had the potential to benefit some insurers while harming others.
Steadily rising rates should be lemonade for any life and annuity issuers with ordinary, plain-vanilla portfolios.

Life and annuity issuers will lurch to the end of the second quarter Thursday, and then get ready to tell investors what the heck just happened.

The companies that promise to protect your clients against death, disability, long-term care risk and longevity risk faced a storm of lemons. While some insurers were able to make lemonade from those lemons, they may have conked other insurers hard on the head.

The National Association of Insurance Commissioners Capital Markets Bureau has tried to make sense of some of the new, market-shaping factors, and companies like Fitch Ratings have tried to analyze others.

Here’s a look at five of those factors, and what kinds of insurers might benefit from and suffer from those factors.

1. Rising Interest Rates

Interest rates have now been at low, low levels for years.

The Federal Reserve Board began to turn away from “lower, forever and ever and ever, and ever” in March, and do what it could to nudge rates higher.

Rising rates could hurt any life and annuity issuers that need to borrow money to support their operations, or that depend heavily on the value of investments in stock or residential real estate.

But steadily rising rates should be lemonade for any life and annuity issuers with ordinary, plain-vanilla portfolios of high-grade corporate bonds.

2. Fear, Uncertainty & Wider Spreads

Russia invaded Ukraine on Feb. 24, and the shock and unease created by the war continued after March 31, into the second quarter.

In happier times, investment-grade corporate borrowers paid rates close to what the U.S. Treasury paid.

Since Feb. 24, the spreads between what investment-grade corporate borrowers and the U.S. federal agencies pay to borrow money widened.

The wider spreads could hurt any life insurers that are heavy borrowers themselves, or that have unusually close relationships with shakier companies.

But wider spreads probably helped most life and annuity issuers with ordinary, bond-filled investment portfolios.