Certainly, life & pension products cannot defy low investment returns which are today well below levels seen 20 years ago. Given the economic environment, subdued growth and inflation, low interest rates are no surprise. Since the financial crisis, however, the secular drop in interest rates has taken on new dimensions. The forces pushing interest rates down to ever new lows have less to do with fundamental factors and largely to do with unconventional monetary policy. The result: real returns, i.e. those after adjustment for inflation, are in many cases close to the zero mark – or even below. This is financial repression at work.
So, the value of life insurance in today’s environment lies not in shielding clients completely from falling yields but in protecting their assets against financial repression: Life insurance & pensions have to enable savers to pursue long-term real asset accumulation, building a nest-egg for maintaining their living standard in old-age.