The pandemic continues to impact events far and wide, and Conning expects it will also lead to even lower projected book yields for life-annuity insurers, further adding to a two-decade decline.
However, declining yields may not be the area of most concern. A study of model portfolios and potential outcomes under stressed market conditions suggests that some insurers may have significant downside exposure – and may not be fully aware of the risk. While the more drastic outcomes are low in probability, so too was the recent COVID-19 outbreak, a surprise that may spur some insurers to revisit their comfort level with potential portfolio declines.
Insurers may wish to consider scenario planning – stress testing portfolios against historical market downturns – to help them review potential portfolio performance in a variety of conditions.