Low rates are once again the key risk facing insurers globally, after bond yields fell again during 2019 from already subdued levels. With a low for longer scenario now more likely, life insurers, facing added pressure on their investment income and economic solvency, will be forced to accelerate their shift to a less interest rate-sensitive business model. The most vulnerable are those with: 1) high dependence on savings policies that offer high guaranteed returns; 2) little or no ability to lower distributions to policyholders; 3) shortdated assets and long-dated liabilities. » Low for longer scenario now more likely. Government bond yields fell during 2019 in many countries, with the global stock of negative-yielding debt exceeding $17 trillion at the end of August. Against a background of sluggish global growth, subdued inflation expectations, and flattening yield curves, we expect rates to remain low for longer than we initially anticipated. » Insurers' investment income is under pressure. Falling rates force life insurers to reinvest maturing assets at lower yields, weighing on their investment income. Companies with heavy exposure to savings products offering high guaranteed rates of return, and a wide duration gap between assets and liabilities, are most exposed. The scope for insurers to pass on lower investment returns to policyholders is narrowing. » Insurers will have to adapt more quickly. We expect the industry to accelerate its ongoing shift towards less interest rate sensitive, fee-based, capital light products such as unit-linked and protection policies. Insurers will also assume more investment risk in order to enhance yield. » Insurers may take Japanese lessons. Life insurers globally may seek to learn from their Japanese peers, which remain profitable despite over two decades of low rates. However, Japanese insurers' resilience, due in large part to structural features of their domestic market that allow them to maintain high protection margins, will be difficult to replicate. Insurers in Switzerland, China and Korea are pursuing similar strategies, so far with less success. » Low yields weigh on insurers’ solvency. Lower yields have eroded insurers’ solvency ratios, especially in market consistent valuation regimes such as Solvency II. This will attract the attention of regulators in some countries, giving insurers a further incentive to adapt quickly to low rates. From: Moody’s