Following over a decade of persistently low interest rate, over the last three years, we have seen substantial increase in interest rate levels, driven by tighter monetary policies by central banks to tame inflation. While a reversal in the trend is widely expected, the speed and magnitude of interest rate drop remains uncertain. What is certain, though, is many insurers have started re-thinking about their product strategy in this episode of high interest rate:
- When the interest rate level was low, the minimum guarantees offered in the European insurance market was close to nil, with policyholder upside largely dependent on profit sharing distributed by the insurers. With the rate increase, many insurers have started introducing higher minimum guarantee levels or fixed guarantees with no profit participation. Collaboration with reinsurance partners could potentially further enhance the offer to the underlying customers.
- There is also a re-kindled interest in Europe for unit-linked products with features of guarantees, where the guarantee level is also more appealing under the recent higher yield environment. This is also an area where reinsurance partners could bring material value in product design, hedging, administration and capital optimisation.
- A business case would be presented where a reinsurer supported the development of a hybrid product combining features of traditional guaranteed savings with features of unit-linked products with guarantees.
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