Low Rates May Be ‘Devastating’ to Annuities, Group Says

Bond yields will put pressure on sellers of annuities if interest rates remain near record lows, Robert Kerzner, chief executive officer of industry group Limra, said today at a conference.

“If long-term rates stay where they are, it would be devastating for our industry,” Kerzner said in a speech in Chicago. “For now, there is no relief in sight, and if this is the way it’s going to stay, it’s a game changer.”

MetLife Inc. (MET) and Prudential Financial Inc. (PRU) are among insurers that sell the retirement products that can guarantee an income stream. The sellers rely on bonds to invest funds that they may pay out in the future. The 10-year U.S. Treasury yields 1.72 percent, down from as high as 2.38 percent in March, and the Federal Reserve has pledged to keep rates low through at least the middle of 2015 to boost U.S. growth.

Sellers may adjust offerings if yields remain low, Kerzner said. Firms are already raising prices for some products, said Mark Finkelstein, an analyst at Evercore Partners Inc. The low rates still raise questions among investors about insurers’ profitability, he said.

“People kind of say, ‘Well, can you really make money when the ten-year is at 1.6 and spreads are at historic lows?,” he said in a presentation at the conference.

Low interest rates will slow earnings growth at some insurers, Finkelstein said.

“It is a headwind, but it’s fairly manageable at least over the next five to seven years at these levels,” he said.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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