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  On the precipice of change
Faced with low interest rates and
a global pandemic, the life insurance sector will continue to evolve to meet advisors’ expectations
  The Covid-19 pandemic, unprecedented market volatility and record low interest rates have created many challenges for the global life insurance sector.
Insurance advisors, for their part, will have to become more digitally engaged to meet evolving client expectations in rapidly changing technology and dis-
tribution environments.
relatively conservative investment portfolios. These factors, the report stated, “offset the adverse impact of low rates on profitability and eco- nomic solvency.”
The rating agency changed that outlook to negative in an April 1 report because of “the unprecedented economic disruption from the coronavirus pandemic.”
While some life insurance
companies have focused on
enhancing their legacy systems
to address changing client
dynamics and the demand for
personalized products and ser-
vices, others are collaborating with or acquiring innovative technol- ogy-based companies (a.k.a. insurtechs) that threaten to disrupt the status quo.
As life insurance companies grapple with the challenges of these changing sector dynamics, they have been blindsided by a market crash.
Assessing the impact of the Covid-19 pandemic is premature at this point, but the crisis is most likely to have a negative effect on the life insurance sector, particularly as the crisis drags on, says Manoj Jethani, vice president and senior analyst, financial institutions group, with Moody’s Investors Service Inc. in New York.
In a December 2019 report, Moody’s rated the global insurance sector as stable in its 2020 outlook based on insurers’ efforts to adapt to low interest rates, the companies’ solid regulatory capital and their
When advisors have access to more meaningful data, they can meet the needs of clients better. Insurance companies will need to work with advisors to help them leverage digital technologies.
But while Moody’s changed
its rating of the U.S. industry only, Jethani contends that the outlook can be applied globally. “This is not a U.S. problem; obviously, this is an inter- national issue,” Jethani says.
“There’s so much uncertainty coming from all directions.” According to Moody’s, a prolonged low-rate environment will
reduce net interest income for life insurance companies and further reduce earnings for interest-sensitive products, weakening the sec- tor’s profitability. In addition, given the largest share of life insurers’ invested assets is held in corporate bonds, the economic damage caused by Covid-19, combined with the shock of lower oil prices, will strain insurers’ capital due to future bond ratings downgrades and defaults. As a result, life insurance companies’ ratings could be down- graded too.
Declines in the equities markets may require insurers to bolster their capital reserves to meet obligations on products with guaran- tees, adding to the pressure.
Moody’s notes that the insurance sector began the year with a
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