IRS Reduces Benchmark for Life Insurer Yields

U.S. Life Insurers Struggle with Low Investment Returns: IRS Report
The Internal Revenue Service (IRS) has reported that U.S. life insurers are facing portfolio problems due to low interest rates on older bonds. This news comes as a blow to long-term, retirement-oriented investors who rely on these insurers for stable investment returns.
According to the IRS, U.S. life insurers’ “domestic investment yield” for the previous year has fallen to 2.3%, down from 3% a year ago and significantly lower than the 10% benchmark set in 1989. This decrease in investment returns per dollar of assets highlights the challenges faced by insurers in generating income in the current low-rate environment.
U.S. life insurers typically focus on using high-grade corporate bonds and other fixed income assets to create a low-risk stream of earnings for their clients. However, the drop in the IRS domestic investment yield indicates the difficulty of earning a good rate of return for those who prefer to stick with bonds and other fixed-rate assets.
The history of declining interest rates, starting from the 1990s when central banks began lowering rates to combat inflation, has had a significant impact on the investment strategies of life insurers. Despite the Federal Reserve’s recent efforts to raise rates, many insurers are still experiencing falling portfolio returns due to the maturation of high-paying bonds purchased decades ago and volatility in investments such as mortgage-backed securities and private equity funds.
Overall, the news of U.S. life insurers’ portfolio problems serves as a cautionary tale for investors and highlights the challenges of navigating the current investment landscape.