CILA Seminar on Falling Interest Rates in Life Assurance - Mumbai 2017
The trajectory of interest rates in the life assurance industry with a historical analysis, government bond yields comparison, and predictions for 2017, 2018, and 2022. Delve into how the Indian actuarial profession is serving public interest amidst changing economic landscapes. Discover insights on where interest rates are headed and the implications for the industry.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
You are allowed to download the files provided on this website for personal or commercial use, subject to the condition that they are used lawfully. All files are the property of their respective owners.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.
E N D
Presentation Transcript
12th Seminar on Current Issues in Life Assurance (CILA) Falling Interest Rates Setting the Context 20 February 2017 Mumbai Indian Actuarial Profession Serving the Cause of Public Interest
Where are interest rates headed? Will interest rates in 2017 be: A) Around 7% B) Higher C) Lower www.actuariesindia.org 2
Where are interest rates headed? Will interest rates in 2018 be: A) Around 7% B) Higher C) Lower www.actuariesindia.org 3
Where are interest rates headed? Will interest rates in 2022 be: A) Around 7% B) Higher C) Lower www.actuariesindia.org 4
Historical Analysis www.actuariesindia.org 5
Current 10-year Government Bond Yields 10-year Government Bond Yields 12% 10% 8% 6% 4% 2% 0% Source: Investing.com www.actuariesindia.org 6
Historical 10-year Government Bond Yield 10-year Government Bond Yield - India 12% 10% 8% 6% 4% 2% 0% May 03 May 08 May 13 Nov 00 Sep 01 Jul 02 Nov 05 Sep 06 Jul 07 Nov 10 Sep 11 Jul 12 Nov 15 Sep 16 Mar 04 Mar 09 Mar 14 Jan 00 Jan 05 Jan 10 Jan 15 Source: Investing.com www.actuariesindia.org 7
Historical 10-year Government Bond Yield 10-year Government Bond Yield - India 12% 10% 8% 6% 4% 2% 0% May 03 May 08 May 13 Nov 00 Sep 01 Jul 02 Nov 05 Sep 06 Jul 07 Nov 10 Sep 11 Jul 12 Nov 15 Sep 16 Mar 04 Mar 09 Mar 14 Jan 00 Jan 05 Jan 10 Jan 15 Source: Investing.com www.actuariesindia.org 8
Historical 10-year Government Bond Yields 10-year Government Bond Yields - India v/s BRICS 18% 16% 14% 12% 10% 8% 6% 4% 2% Nov 00 Nov 05 Nov 10 Nov 15 Sep 01 Jul 02 May 03 Sep 06 Jul 07 May 08 Sep 11 Jul 12 May 13 Sep 16 Jan 00 Mar 04 Jan 05 Mar 09 Jan 10 Mar 14 Jan 15 India Brazil Russia China South Africa Source: Investing.com www.actuariesindia.org 9
Historical 10-year Government Bond Yields 10-year Government Bond Yields - India v/s A-Pac 17% 15% 13% 11% 9% 7% 5% 3% 1% -1% May 03 May 08 May 13 Nov 00 Nov 05 Nov 10 Nov 15 Sep 01 Jul 02 Sep 06 Jul 07 Sep 11 Jul 12 Sep 16 Mar 04 Mar 09 Mar 14 Jan 00 Jan 05 Jan 10 Jan 15 India China Japan Singapore South Korea Indonesia Hong Kong Australia Source: Investing.com www.actuariesindia.org 10
Historical 10-year Government Bond Yields 10-year Government Bond Yields - India v/s Europe 11% 9% 7% 5% 3% 1% -1% Nov 00 Nov 05 Nov 10 Nov 15 Sep 01 Jul 02 May 03 Sep 06 Jul 07 May 08 Sep 11 Jul 12 May 13 Sep 16 Jan 00 Mar 04 Jan 05 Mar 09 Jan 10 Mar 14 Jan 15 India UK USA Germany France Spain Source: Investing.com www.actuariesindia.org 11
Economic Theory www.actuariesindia.org 12
Determinant of long-term interest rates Central Bank s actions determine long-term interest rates through short-term interest rates and various monetary policy measures Investors extrapolate present and past in developing view on long-term outlook Change in short-term interest rates crucial determinants of change in long-term interest rates - John Maynard Keynes Source: Working Paper No. 834, Levy Economics Institute of Bard College www.actuariesindia.org 13
Empirical evidence Around 90% correlation between repo rate and 10-year government bond yields in India over the past four years RBI targets CPI inflation - Around 60% correlation between repo rate and CPI inflation in India over the past four years CPI inflation the crucial driver for long-term interest rates!?! Source: Investing.com, RBI website www.actuariesindia.org 14
Impacts www.actuariesindia.org 15
Investment Strategy Does ALM become even more relevant Will insurers be forced to make riskier investments Is liquidity risk an opportunity Are current risk management frameworks adequate Management of current guarantees Can derivatives be used increasingly Risks from subsequent increase in interest rates www.actuariesindia.org 16
Products Product mix Product design Reduced investment surplus Competition with other financial products Change in demand trends and feasibility / risks Product innovation www.actuariesindia.org 17
Operational impacts Profit margins Expense loadings Policy case size Frequent re-pricing Persistency Lower inflationary pressures www.actuariesindia.org 18
Others Impact on insurance company valuations Impact on valuation interest rate Level and computation Impact on solvency, especially under a RBC regime - Including impact on backing free assets Impact of Ind-AS implementation Realising MTM impacts on P/L www.actuariesindia.org 19
THANK YOU!!! www.actuariesindia.org 20
