5 Things to Know About Life Insurers’ Investment Machinery, for Agents
March 17, 2020 by Allison Bell
For life insurance agents, watching life insurers go on a wild market rollercoaster, one logical question might be, “So, how are the bolts on the seatbelts doing?”
Life insurers use a variety of financial arrangements, such as exchange-traded futures contracts, and over-the-counter swaps and options, to “hedge themselves” — or buffer themselves — against swings in interest rate and investment price risk.
In theory, when markets jump up and down, the hedging arrangements are supposed to limit any damage to the effect of plunging interest rates on bond-related portfolio yields, and they’re supposed to limit damage to customers who have life or annuity account value tied to the value of investment indexes, along with minimum product performance guarantees.