Description: The Federal funds rate increased by 4.25% in 2022 with further increases in 2023, which have already resulted in a liquidity crisis for a few banks. As the rapid increase of the interest rates pushed the new money rates above the yields of many life insurers’ investment portfolios, insurance companies are facing a dilemma between compressed margins from peer pressure and the concern with liquidity shortfalls and realized capital losses should mass surrenders happen. This paper discussed main emerging risks under rising interest rate environment, and several ways to mitigate these risks.

Description: The Federal funds rate increased by 4.25% in 2022 with further increases in 2023, which have already resulted in a liquidity crisis for a few banks. As the rapid increase of the interest rates pushed the new money rates above the yields of many life insurers’ investment portfolios, insurance companies are facing a dilemma between compressed margins from peer pressure and the concern with liquidity shortfalls and realized capital losses should mass surrenders happen. This paper discussed main emerging risks under rising interest rate environment, and several ways to mitigate these risks.

Description: Since most cash flows being discounted in the value calculation are dependent on the forward rates, in the key-rate calculation forwards (not spots) should be shifted. I will show that if spots are shifted up/down, they would not necessarily result in forwards being up/down for all the years in the particular key rate, resulting in unexpected results. I will further show how metrics calculated by shifting forwards versus spots enhance the accuracy of the approximation of projected value in various rate environments.

Description: The article provides a summary of the Drake Risk & Opportunity Forum held on October 21, 2022. The forum was a hybrid conference that attracted more than 200 attendees from 17 states, two countries, 48 employers, and five universities. Following an introduction by the Zimpleman College of Business Dean, the forum held six sessions. First was an insurance company CRO panel followed by a panel of non-insurance company CROs. Gary Zhu shared his outlook for interest rates and capital markets. The fourth panel discussed insurance capital models. The fifth panel discussed environmental, social, and governance (ESG) criteria when building insurance company investment portfolios. The final session of the day was a discussion about the NAIC, how they operate, and their priorities for the coming year.