Low Interest Rate Environment
- MetLife’s strategy of shifting our product mix toward less interest-sensitive products has helped mitigate the impact of a low-rate scenario.
- However, if interest rates remain low indefinitely, it would likely be difficult to sustain our 2014 operating ROE of 12 percent over the long term.
- This is not a MetLife-specific challenge.
- Maintaining current return targets in a long-term low rate scenario would likely be a challenge for most businesses, particularly those in the financial services industry.
2014 - MetLife Annual Report
- The low interest rate environment poses a significant challenge for life insurers with sizable blocks of liabilities incorporating embedded interest rate guarantees, such as annuities or universal life insurance policies.
- The industry has reduced its minimum guarantees over time, but products sold when interest rates were higher represent a continue drag on profits.
- The share of life and annuity product account values subject to a minimum guaranteed rate of return of 5 percent or higher fell from 20 percent to 10 percent over the 2006-2010 period, but more than 40 percent of account values were still subject to a minimum guaranteed rate of return of 3.5 percent or higher in 2010.
2012 - FSOC - Annual Report - 225p
Low interest rates reduced insurers’ profit margins on variable annuities with guarantees, long-term care
insurance, and guaranteed universal life insurance. Product design changes to mitigate thinner margins have only somewhat helped. The negative impact on profit margins has required some insurers to absorb substantial charges to reserves, a trend that could continue absent an increase in interest rates.
2015 - FIO or OFR ??