– Insurers invest premiums in debt-heavy portfolios – Rate cycles affect investment income and valuations – Life and general insurers respond differently
How Higher Rates Impact
– Higher returns on premium float – Improves net investment income – Increases embedded value for life insurers
How Lower Rates Hurt
– Lower bond yields reduce investment earnings – Guaranteed products become unattractive – Profitability drops on legacy policies
Risks to Track
– Sharp rate swings affect ULIP-linked returns – Rate drop = markdown in investment book – Can pressure VNB margins in life insurers
Investment Insights
– Track rate trends vs insurer’s investment book – Prefer insurers with higher exposure to floating-rate assets – Focus on underwriting quality in low-rate periods