I agree with the information, ideas, and opinion expressed in this reading.The property and casualty industry is sensitive to changes in interest rates.In the article, the author explains how lower interest rates impact the success of insurance companies.P&C firms find it difficult balancing their interests with those of clients. Lower interest rates are beneficial to the firm as it reduces liabilities and solvency.Lower interest rates favor the policyholder, but it has to respond accordingly in controlling risks. Henderson explains that lowered interest rates diminish the value of the insurance firm. Consumers tend towards firms offering higher interest covers.
I support the author's opinion that increased interest rates are favorable for long-term interest returns. P&C companies could consider diversifying by investing in bonds.However, the author also notes that the insurer has to be considerate with a sharp increase in interest rates.I read a similar explanation in Henderson's article that abrupt changes in interest rates pose a financial threat to the insurer as the firm may not know how to respond effectively. Gradual changes in interest rates allow the insurer to observe changes and plan accordingly.The advantage of a gradual increase is that it wills enable the insurer to respond to changes occurring in the market instead of making hasty decisions by reacting to external pressure.
Changes in interest rates determine the success or failure of the insurer. Reduced rates may favor the insurer as they reduce solvency and liabilities, but they also reduce profit margins by reducing the value of the firm. Increased interest rates increase the value of the firm, but they also raise the liability and solvency of the firm.Sharp changes in the market may have adverse impacts on the firm as they do not allow the policyholder to respond accordingly.
Henderson, Neville. Low-for-long: The Effects of a Low-Interest Rate Environment on Canadian Insurers — Remarks by Neville Henderson to the 2017 American Risk and Insurance Association Annual Meeting, Toronto, Ontario.Office of the Superintendent of Financial Institutions.http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/sp-ds/Pages/nh20170808.aspx. Accessed 22 Feb. 2019
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