it will come out somewhere

it will come out somewhere

While insurance policies written today can be adjusted for the current market environment, policies written prior to the "great recession" often carried "guaranteed" interest payments as high as 4% - 5%.  And, with central banking policies around the globe pushing sovereign bond rates to historic lows (see "With Over $13 Trillion In Negative-Yielding Debt, This Is The Pain A 1% Spike In Rates Would Inflict") it is no wonder that insurers are taking a hit

At issue are “universal life” policies. In short, the policies combine a death benefit with a tax-advantaged savings account that has a minimum interest rate. Such policies accounted for more than a quarter of all individual life-insurance sales in some years past.Millions of Americans own them.

Insurers’ problem is that many older policies guarantee annual interest rates of 4% to 5%.  In the mid-1980s, when universal life policies surged in popularity, the average investment portfolio yield for life insurers was nearly 10%, according to ratings firm A.M. Best Co.

Today, that yield is just under 5%, thanks to a general decline in rates over the decades, followed by the more recent sharp leg down.

In selling universal life, insurers typically aim to earn 1 to 2 percentage points more on the premiums they invest than they pay out in interest to policyholders, said Deloitte Consulting LLP principal Matthew Clark. Most insurers aren’t earning this spread today, and “with continued low rates some could face a situation where they are paying out more to policyholders than their investments earn,” he sai