The first source is core operations, in other words, underwriting of policies. The second is returns on invested premiums of written policies. The latter makes insurance companies even more vulnerable to the macroeconomic environment, with monetary policy determining to an extent the terms of competition in the market. In detail, rivalry is alleviated through increasing returns on investment, as in this case insurers do not have to engage in premium increases competing intensively over new underwritings. Accordingly, diminishing returns on investment through low interest rates provokes rivalry and premium increases, with players having better price margins through improved debt ratios (liabilities to assets) to gain market share. In these regards, the low interest rate environment in the US market, in spite of the slight interest rate rise in 2017, has eroded the investment income of insurers in the market in recent years. In fact, in 2016, the annual real net investment return of life and non-life insurers was estimated only at 2.2% and 0.8%, respectively. Moreover, the prevailing economic uncertainty related to the performance of the US economy over the coming years is going to preserve this low interest rate environment, thus insurers will either have to look for higher investment yields that are more risky, or more likely they will increase their focus on underwriting profits, intensifying competition. The
The first source is core operations, in other words, underwriting of policies. The second is returns on invested premiums of written policies. The latter makes insurance companies even more vulnerable to the macroeconomic environment, with monetary policy determining to an extent the terms of competition in the market. In detail, rivalry is alleviated through increasing returns on investment, as in this case insurers do not have to engage in premium increases competing intensively over new underwritings. Accordingly, diminishing returns on investment through low interest rates provokes rivalry and premium increases, with players having better price margins through improved debt ratios (liabilities to assets) to gain market share. In these regards, the low interest rate environment in the US market, in spite of the slight interest rate rise in 2017, has eroded the investment income of insurers in the market in recent years. In fact, in 2016, the annual real net investment return of life and non-life insurers was estimated only at 2.2% and 0.8%, respectively. Moreover, the prevailing economic uncertainty related to the performance of the US economy over the coming years is going to preserve this low interest rate environment, thus insurers will either have to look for higher investment yields that are more risky, or more likely they will increase their focus on underwriting profits, intensifying competition. The