INSURERS are warning that low interest rates could cause insolvencies in their industry, a report from Linklaters has found.
Two thirds of insurers are looking to explore new markets, according to the global law firm, as low rates mean they are unable to turn a profit. The report found that 65 per cent are looking to new sectors to boost business, while 45 per cent believe that low yields are the new market norm. Victoria Sander, corporate partner at the firm, said that the results showed a shift towards riskier types of investment.
“We’ve already seen insurers trying to reduce their cost base and redesigning products. They’re exiting certain markets altogether and investing to a greater degree in private equity and hedge funds,” she said. “These are riskier investments and the concern has to be that the industry doesn’t start to overreach and face unacceptable risk – it’s about finding the right balance.”
Stuart Bridges, group finance director at Hiscox, said low interest rates pose questions for the industry but the government and Bank of England are right to focus on getting the economy moving. “Economic growth is good for the industry,” he said, adding that in time ministers would have to address the pressure of prolonged low interest rates.