Interest Rate

  • We must understand that we no longer have any reasonable basis for making any assumptions whatever about the range within which interest rates will fluctuate.
  • Financing the squeeze by issuing commercial paper is just about the most dangerous thing a life company can do.

1981 01 - Financial Hazards of the Cash Value Life Insurance Business, EJM, The Actuary, Society of Actuaries - 2p

  • How many actuaries would feel comfortable assuming a 9% interest rate over the next 20 years, if the premium rates were guaranteed?

-- DENISE F. ROEDER <Occidental>

1980 - NON-PARTICIPATING LIFE PRODUCTS WITH NON- GUARANTEED PREMUIMS, Society of Actuaries

  • Maybe he is not getting all the disclosure he needs, as far as the continuing benefit is concerned, when the interest rates change from that illustrated. 
  • The interest assumption is one that we really struggled with.

--  Gary P. Monnin

1982 - Universal Life - Society of Actuaries - 14p

One problem area in a lot of policies has been interest rates.

A slow cumulative, very large decline in interest rates has affected everything.

  • Why are we getting so many complaints?
  • Did the policyholder expect rates to stay the same forever?
  • Did the agent or the company mislead?
  • Did the policyholder think we were promising?
  • He shouldn't have, I hope he didn't.

--  BRUCE E. BOOKER

1993Sales Illustrations - We Can't Life with Them, But We Can't Life Without Them!, Society of Actuaries

Two years ago, universal life was typically crediting 13% or 14% on a current basis.

  • The conventional wisdom said that a successful Universal Life (UL) company could not succeed in developing and introducing variable life, because the agents would rather sell a 14% sure thing than a stock fund.
  • Well, we did not think that that was true then, and we sure don't think it's true now.

GILBERT W. FITZHUGH <Senior Vice President and Actuary at PRUCO Life, stock subsidiary of the Prudential Insurance Company>

1986 - VARIABLE LIFE/FIXED AND FLEXIBLE PREMIUM, Society of Actuaries - 38p

  • Projects (1) and (2) correspond to the topic heading "Companies Earning Lower Interest Rates than the Rate Assumed in Their Reserves."

1982-1 NAIC Proc. 

  • He <Birny Birnbaum (CEJ)>  said the best predictor of future interest rates are current interest rates.

https://www.naic.org/meetings1704/cmte_a_2017_spring_nm_materials.pdf

  • The interest rate sensitivity of UL policy cash values, amplified by the corresponding cost of insurance sensitivity with declining interest income, suggests UL has always been a simple question of Duration.

201x - Universal Life Insurance Duration Measures -  Lange, Alonzi, Simpkins - 14p 

  • A lower rate of interest than the common one is assumed, because the general experience of life insurance companies has been that when this precaution has not been taken the companies eventually find themselves involved in hopeless bankruptcy.
  • All calculations in life insurance are based upon' two simple data: the rate of interest on the invested assets of the companies and the average rate of mortality among the insured.  (p6)

1870 - Book - Cost of Insurance: A Treatise Upon the Cost of Life Insurance, Together with an Arithmetical Explanation of the Computation of Premiums and Valuation of Policies to which are Added Tables of Net Premiums, Cost of Insurance for the Use of Life Insurance Agents - by Nathan Willey

 

LEWIS’ INTEREST-RATE PREDICTIONS
The following was stated by Douglas H. Rose in the 1920......
“The Spectator Company is in the habit of publishing annually
in its Year Book the rate of interest earned on mean invested
funds of a limited number of life companies. Going back 40 years, the averages for five-year periods are as follows:

1880–1884 ....... 5.50%
1885–1889 ........ 5.37%
1890–1894 ........ 5.15%
1895–1899 ........ 4.88%
1900–1904 ........ 4.66%
1905–1909 ........ 4.77%
1910–1914 ........ 4.80%
1915–1919 ........ 4.87% [21]

Yields on Moody’s Aaa-rated corporate bonds for the period 1919 (the earliest year for which such a figure was found) through 1997 are shown in Table A.

TABLE A
Corporate Aaa (Moody’s Seasoned Bond Yields 1919 to 1997
(Percent per Annum)

Year Yield Year Yield

1919 5.49
1920 6.12
1921 5.97 1961 4.35
1922 5.10 1962 4.33
1923 5.12 1963 4.26
1924 5.00 1964 4.40
1925 4.88 1965 4.49
1926 4.73 1966 5.13
1927 4.57 1967 5.51
1928 4.55 1968 6.18
1929 4.73 1969 7.03
1930 4.55 1970 8.04
1931 4.58 1971 7.39
1932 5.01 1972 7.21
1933 4.49 1973 7.44
1934 4.00 1974 8.57
1935 3.60 1975 8.83
1936 3.24 1976 8.43
1937 3.26 1977 8.02
1938 3.19 1978 8.73
1939 3.01 1979 9.63
1940 2.84 1980 11.94
1941 2.77 1981 14.17
1942 2.83 1982 13.79
1943 2.73 1983 12.04
1944 2.72 1984 12.71
1945 2.62 1985 11.37
1946 2.53 1986 9.02
1947 2.61 1987 9.38
1948 2.82 1988 9.71
1949 2.66 1989 9.26
1950 2.62 1990 9.32
1951 2.86 1991 8.77
1952 2.96 1992 8.14
1953 3.20 1993 7.22
1954 2.90 1994 7.97
1955 3.06 1995 7.59
1956 3.36 1996 7.37
1957 3.89 1997 7.26
1958 3.79
1959 4.38
1960 4.41

Sources: For years 1919–1970: U.S. Dept. Of Commerce, Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970, Bicentennial Edition, Part 2, 1975, 1003, Washington, D.C. For years 1971–1966, U.S. Dept. Of Commerce, Bureau of the Census, Statistical abstract of the United States, various years and pages, Washington, D.C. For 1997, Moody’s Investors Service, Moody’s Bond Record, February 1998, Vol. 65, No. 2, 38.

1998 - A 99-Year Prospective Test of an Interest-Rate Theory, by Daniel F. Case, Society of Actuaries