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Life Insurance Industry Investments: The Search for Yield Runs Dry

Friday, November 20, 2015

The Conning report annual in-depth analysis of life insurer assets and capital comes on the heels of another year (2014) of historically low interest rates and more recently increase to charges in life insurance inforce policies. “The quest for yield has been the key focus for the life industry investment portfolio for years now,” said Mary Pat Campbell, Vice President, Insurance Research at Conning, Inc stated in a recent press release. “In response to the continued pressures of the low interest rate environment, insurers have been adjusting allocations in the investment portfolio to provide the much-needed extra yield. From 2010 to 2014, insurers have shifted away from stocks to reduce exposure to volatility, and have increased their allocation in yield-boosting investments such as Schedule BA assets as well as lower-rated bonds.”

The Conning study combines a discussion of strategic issues facing the life insurance industry with a detailed examination of its investment profile. “This quest for extra yield has cut across the life industry, as insurers of all sizes have been adding credit risk in their investment grade bond portfolios,” said Steve Webersen, Head of Insurance Research at Conning, Inc. “This is especially true of midsized insurers that are invested overwhelmingly in bonds. In comparing investment results between insurers, we also see some of the largest insurers adding risk with below investment grade bonds and investments in Schedule BA assets. Insurers have done what they can, but the persistent low interest rates have dominated over moves to increase yield in these past several years.”

The life industry’s investable assets increased by 4.0 percent or $130 billion between 2013 and 2014, attaining $3.4 trillion. This is a large segment of the financial services industry that know so little about what they are being charged or what they are earning in performance. Veralytic takes into account the yield against benchmarks in our star #3 for pricing stability. While the Veralytic report has no way of predicting whether a policy will perform as illustrated, the Veralytic Report does consider whether the values illsustrated are consistent with the insurer's histroical experience and how potential changes in experience might impact the future. 

INSPECT WHAT YOU EXPECT! Use a Veralytic Research Report to measure policy expenses as one of the 5 factors of suitability. If you(r clients) do not know what they are paying for cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based "wrap fees" (e.g., M&Es) and premium loads in their life insurance policy holdings now, then there will be no way to know if or when such policy expenses are increased. Now is the time to find out. 

Veralytic is the only patented, objective and rules-based research tool that goes beyond the overly-simplistic comparisons of illustrations of hypothetical policy values that can be considered “misleading” and “inappropriate” by both financial and insurance industry authorities. Veralytic’s independent research reports provide a facts-based solution that is both compliant with industry regulations and established case law.

Veralytic is simply the fastest, easiest, and most comprehensive and cost-effective way to independently verify to clients and their advisors whether or not the pricing and performance of existing or proposed life insurance is in their best interest.  Only Veralytic is accepted for independent client representation, endorsed by the New York Bankers Association (NYBA) and compliant with industry regulations and established case law. 

Use the Veralytic Reports to determine the appropriateness of pricing, the reasonableness of performance expectations for invested assets underlying policy cash values, and overall suitability for your (client’s) policies based on the 5 factors of suitability.  Get up to 3 Veralytic research reports under our NO-Risk trial subscription.

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