Despite the volatile operating environment, with the occurrence of natural calamities, regulatory changes, Federal Reserve’s decision as to when hike the interest rate again, there have been quite a few insurance companies which have delivered better-than-expected results in the third quarter of 2017.

Even though the aforementioned challenges are anticipated to impact the upcoming quarter, we remain optimistic about the operational performance of such insurance companies in the near term.

We will discuss some driving factors that should help insurance companies to perform better in the impending quarter, raising optimism among investors.

Rising Interest Rates — A Much Awaited Boon to Insurers

If we focus on the life insurance industry, we can identify its connection with interest rates, given the high sensitivity of the players’ business models to interest rates. Therefore, life insurance industry’s heavy dependence on investment income will benefit most companies from the rising interest rate environment. Thus, rising interest rates as well as increase in bond yields will provide a required relief to insurers to maintain margins.

Although the Federal Reserve has left the interest rates unchanged (following the Federal Open Market Committee’s meeting on Sep 20, 2017) ranging between 1% and 1.25%, the life insurers are still looking forward to another interest rate hike this year, indicated by policymakers at the meeting. Interestingly, the Fed committee also expects to raise interest rates thrice in 2018. Hence, the overall industry pins hope on the investment income growth in the immediate term. This in turn might also help strengthen its market position.

A progressing rate environment will lessen the burden on life insurers’ investment income, boosting their earnings. This will additionally, accelerate the insurance companies’ overall rise in the future.

Other Aspects Likely to Boost Future Performance

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