Low rates may hurt insurers

Sep 30, 2011

The Federal Reserve promises to keep interest rates low, hurting some insurers.

The Federal Reserve recently announced it will keep its interest rate at a record low through the middle of 2013 in an effort to help revive the economy and housing market. The pledge was in response to the recent downgrade of the U.S. credit rating that had drastic effects on the stock market, pushing investor funds into U.S. securities thus lowering the interest rates, Bloomberg reported.

The Fed said the economic growth has been slower than anticipated, and it expects the weak pace to continue in the upcoming quarters. The low interest rates are one way the agency is working to improve the pace of recovery.

The Associated Press recently reported John Nadel, an analyst at Stern Agee, said in a client note that the long-term low interest rates could hurt shares of life insurers. The lending rate of the Federal Reserve affects yields for Treasuries that many insurance companies have ownership in, and these Treasury bonds will likely stay down in accordance with the interest rates, the news source reported.

Nadel said life insurance stocks will fall behind other companies' shares when the market recovers due to extended period of time long-term rates will be under pressure. 

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