The latest victims of misinformed global central banking policies are retirees holding “universal life” policies…once again the “prudent” folks who saved for their retirement are exactly the ones being brutally punished for their efforts.
As the Wall Street Journal points out, insurers are facing a rapidly rising number of class action lawsuits around the country after their attempts to raise premiums on universal life policies in response to lackluster returns on their bond portfolios. As we’ve discussed on several occasions, low bond yields on sovereign debt are taking their toll on insurers whose asset returns have suffered. The problem faced by insurers is related to old policies underwritten before the “great recession” and before central banks around the world decided to embark upon their “grand experiment.” While insurance policies written today can be adjusted for the current market environment, policies written prior to the “great recession” often carried “guaranteed” interest payments as high as 4% – 5%. And, with central banking policies around the globe pushing sovereign bond rates to historic lows (see “With Over $13 Trillion In Negative-Yielding Debt, This Is The Pain A 1% Spike In Rates Would Inflict“) it is no wonder that insurers are taking a hit. Per the As the Wall Street Journal:
At issue are ‘universal life’ policies. In short, the policies combine a death benefit with a tax-advantaged savings account that has a minimum interest rate. Such policies accounted for more than a quarter of all individual life-insurance sales in some years past. Millions of Americans own them.
This post was published at Zero Hedge on Sep 2, 2016.