The U.S Insurance Industry battled a plethora challenges in the form of a tumultuous 2017 — a year plagued with weather-related events, regulatory upheavals as well as political turmoil. However, the U.S. insurers have entered 2018 with renewed confidence and are anticipating improved performance as the year rolls on.

Although there will be challenges to counter in 2018, the insurers remain focused on achieving two important objectives — growing top-line sales while bolstering bottom-line profitability.

With a rapidly-changing regulatory climate, unpredictable nature of the occurrence of natural calamities and a volatile operating environment, we expect some of the insurers to face these challenges head on and remain optimistic about the operational performance of such insurance companies in 2018.

We will discuss some driving factors that should help insurance companies to perform better this year, raising optimism and allaying apprehensions among investors.

Potential Impact of Rising Interest Rates

The insurance industry as a whole has been positively impacted by rising interest rates. With the Fed delivering with its promise of hiking interest rates thrice in 2017, the insurers remain hopeful for the same number of rate increases in 2018 and two more in 2019. The anticipation of the first rate hike in March as indicated by the Federal Reserve in Jan 31 meeting has restored hope. Currently, the interest rate ranges between 1.25% and 1.50%, which is expected to boost the insurance industry’s prospects.

If we view the life insurance industry separately, we can identify its connection with interest rates, given the high sensitivity of the players’ business models to interest rates. Consequently, the life insurers will get a relief from the operating pressures resulting from tight credit spreads that the low-rate environment has exerted for a considerable period of time. But the insurers will not see a significant benefit due to the substantial reduction of their interest-sensitive product lines in the low-rate era. Nonetheless, rising interest rates as well as increase in bond yields will provide required relief to insurers to maintain margins.

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