How does Fed Rate cut affect IULs/WL?

Can someone explain to me how the 0% Fed Rate, or possible negative interest rates in the future, will affect max funded WL and IUL policies?
To IUL:

I think it depends on the health of the insurer but for the most part, they are going to shove these rates down the policy owners' throats.

For carriers with strength, you'll see caps drop when they are contractually allowed to do so (which is understandable).

For companies that are weaker, you could see a min/max (cap/cost) scenario, which would be doomsday for policies not max funded.

This won't be pretty at all for our market. I hope that it doesn't last for an extended period of time.
 
Since we have never had 0% before, does anyone know for sure, or are we just working on educated guesses?
I know how interest rates affect these products, but we're just guessing on what the carriers will actually do.

Low interest rates and high volatility is terrible for products like IUL and indexed annuities.
 
Ok well what about max funded WL policies??
 
Ok well what about max funded WL policies??
Depends on the strength of the carrier (to pay dividends) but you should expect them to underperform their illustrations as well.

Keep in mind that these insurance companies mainly invest premiums/their general account in bonds.

Yield is rapidly decreasing (increasing bond costs) making it harder for them to allocate new assets.

This environment really isn't good for any product type (outside of shorts/hedges).
 
Interest rates directly effect the Renewal Rates of Caps/Spreads/PRs/etc.

The overall effect to the carrier can cause increases in the Internal Expenses.
 
Depends on the strength of the carrier (to pay dividends) but you should expect them to underperform their illustrations as well.

Keep in mind that these insurance companies mainly invest premiums/their general account in bonds.

Yield is rapidly decreasing (increasing bond costs) making it harder for them to allocate new assets.

This environment really isn't good for any product type (outside of shorts/hedges).

Penn Mutual :)
 
Life insurance carriers are more worried about the long term interest rate environment ... the rates being cut to 0 temporarily won't be a big deal if things go back to normal. .. The longer we stay in a low interest rate environment.. the more it would squeeze carriers' yield... and IUL and WL would both suffer from it..

but keep in mind that nothing happens in a vacuum ...
 
Back
Top