The life insurance industry is currently facing challenges in many fronts.

• These challenges, if not properly met, could easily lead to financial problems for many companies.

Within the last decade, life insurance companies have increased their sales of products that are sensitive to the interest rate environment.

• Examples of such products are universal life, single and flexible premium deferred annuities, guaranteed interest products and current assumption life insurance.
  • During rising interest rate environments, policyholder demands for high yields can result in policyholders surrendering their contracts.
  • Life insurance companies which have not adequately positioned themselves for this event might be forced to liquidate their assets and experience capital losses.
• On the other hand, in declining interest rate environments, insurance companies attempt to maintain their crediting rates on their interest sensitive products.
  • This can lead to companies decreasing and, even in some cases,eliminating their profit margin.  (p4-5)

1986 0619 - NAIC / GOV - Edward Muhl (MD) - Reliability of the Institution of Insurance as to Financial Solidity and Solvency -  20p