Insurer Survivability: (More) Unintended Consequences Of ZIRP And NIRP!

By | March 21, 2016


For potential property buyers and current owners of property who are thinking of refinancing a mortgage, ZIRP has been, and NIRP may someday be, fantasticmonetary policies!

ZIRPNIRP? For those unfamiliar these acronyms are not the sounds an infant might make but instead are deadly serious policies that are being used by central bankers around the world in an attempt to re-ignite the fortunes of economies that are either stagnating or in full-blown recession.

To date these seers of monetary policy have been marginally successful at best in achieving their stated mandates although, in a much debated move (based on the actual strength of the U.S. economy and the rate of inflation), the Federal Reserve has recently raised the fed funds rate by .0025%.

Getting back to the crux of the story NIRP is a negative interest rate policy (never implemented in the U.S.) and ZIRP zero percent interest rates that have been engineered through policies in the U.S. known by the terms quantitative easing, QE1, QE2, QE3, etc.

And while this style of monetary policy has been a boon for stock market investors, homebuyers, real estate investors and mortgage refinancers, for savers and for those living on fixed income investments it has been an unmitigated disaster!

…while stock market investors have benefited greatly by playing in the ‘only game in town’ within a 0% rate environment, savers and retirees have been slammed by the almost nonexistent returns on their money. That, or they have been forced to take on more risk to reach for that return…‘ (Source)

But Are There More Potential Unintended Consequences Of Central Bank Policies?

From Mish Talk, one of my favorite bloggers who deciphers all things economic, a look at the potentially deadly business effect that monetary policy could have on insurance companies ability to pay!

Or worse (just as bad?), the potential for an unexpected increase in premiums that may be required to keep a policy current placed on the backs of a demographic with the least ability to pay and, who were likely never told that such a possibility existed!

And despite the fact that many insurance companies do whatever they can not to pay (that’s a discussion for another time), isn’t getting paid-out on an actual claim the only reason we pay premiums in the first place? You see insurance companies are great at taking premiums, they’re just not great at paying some types of claims without a protracted battle…

Rethinking Long-Term Care Policies: Will Your Health-Care Insurer Outlast You?

One of the little-discussed consequences of low and negative rates is the impact they have on the viability of insurers, especially long-term care insurers.

Insurers sold policies long ago expecting to invest proceeds in high-grade corporate bonds yielding a respectable 7.5% or more. Thanks to central bank policies, bond yields are in the gutter.

In February, Standard & Poor’s downgraded Genworth’s life-insurance units to junk, citing reduced profitability. Met-Life stopped selling long-term care policies altogether.

Will your insurer even be in business when the time comes for you to collect?

Insurers and Insureds Tormented

The Wall Street Journal reports Low Rates Are Tormenting Insurers and Their Customers.

Life-insurance companies are scouring their policies to identify ways to raise rates and fees and lower the amount of interest they have to pay on savings products as low interest rates cut into their profits.

The bottom line for policyholders is they have to pay up or relinquish benefits.

The main culprit: the Federal Reserve’s seven-year-old campaign to boost the economy.

“We’ve been conducting a prolonged experiment in monetary stimulus, and the impact on savers is one of the great unintended consequences,” said MetLife Inc. Chief Executive Steven Kandarian.

Life insurers’ stock prices have suffered. Shares of 10 of the most prominent U.S. life insurers have lost 12% since 2008, wiping out nearly $30 billion in market value in a period when the broader market gained 40%, according to FactSet.

Long-term-care insurance is one of the products hardest hit by low interest rates, because insurers bank on investing customers’ premiums for 20-plus years before claims come due. Eight million Americans own the policies, and many face annual bills that are 50% higher than before the financial crisis, according to regulatory filings and interviews with financial advisers.

Many owners of “universal-life” insurance, a complicated type of coverage combining a tax-advantaged savings account with a death benefit, face unexpected bills of tens of thousands of dollars. That is because insurers credited less interest to the policies’ savings accounts as interest rates fell. Many buyers intended to use built-up interest to help pay the policies’ annual insurance charges as they got older.

Often in their 80s, these policyholders are struggling “to maintain their coverage just as they’re ready to utilize it,” said Henry Montag, a principal with TOLI Center East in Huntington Station, N.Y., which advises trusts on insurance issues. They are “in such an awkward powerless position where there are no good outcomes.”

At Genworth, long a leader in sales of long-term-care policies, shares are down nearly 90% since before the crisis.

Genworth tallies its losses on long-term-care policies, many dating to the 1970s, at more than $2 billion. “We’re trying to get these large premium increases…to get these policies just back to a break-even going forward,” said Thomas McInerney, the company’s CEO. “We’re never going to recover what we’ve lost.”

Will Your Long-Term Care Insurer Outlast You?

The article highlights the plight of 84-year-old Blossom Blumberg who has been paying log-term care premiums to Genworth for close to 30 years.

Last Autumn, Blumberg received a notice that the premium on her assisted-living policy premium would rise by 60% to more than $6,000 a year.

“Nobody ever explained that the premium was dependent on how much money they made from interest rates,” Ms. Blumberg said.

Genworth Financial Inc (GNW)

On March 11, Genworth Agreed to Pay $219 Million to Settle Securities Suit

Plaintiffs alleged investors were misled about profitability of core business. The proposed settlement, which doesn’t admit wrongdoing, is subject to court approval. A jury trial had been set to begin in May, according to court documents.

Rates are way up, benefits down.

Hello Blossom, care to give Ben Bernanke and Janet Yellen a piece of your mind?

Those a bit younger than Blossom Blumberg need to wonder whether their insurer will last long enough for them to ever collect a dime from their policy.

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at

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