Regulators Say Rising Rates Could Ding Life Insurers' Mortgage Investments

Higher interest rates should improve yields on new mortgages and mortgage-backed securities, but they could hurt the value of mortgages and mortgage-backed securities already in life insurers’ investment portfolios.

Jennifer Johnson and Michele Wong, analysts at the National Association of Insurance Commissioners’ Capital Markets Bureau, gave that assessment in a new analysis of the impact of rising interest rates on insurers’ investments.

Contents

What It Means

The new, higher rates could have different effects on some life insurers than on others, depending exactly on how the insurers invest in mortgages and mortgage-backed securities.

That could increase the gap between the most attractive life and annuity products and the least attractive products and make the advice of a financial professional who can tell the difference more important.

Corporate Bond Rates

The typical rate on an investment-grade corporate bond was 5%. last month.

That was down from 5.5% in December 2022, and down from 7.9% in January 2000. But it was up from a typical rate of less than 3% from January 2010 through January 2022, according to Federal Reserve Bank of St. Louis data cited by Johnson and Wong.