Low interest rates

Interest rates have remained persistently low and have not recovered since the sharp drop during the financial crisis. Central banks around the world decided to cut rates to historic lows in an effort to stimulate growth.

What are the opportunities and what are the risks?

Low interest rates drive up the cost of guarantees, reducing the supply of traditional products because they become expensive and risky, and accelerate the trend towards products where customers (e.g. pension plan participants) bear the investment risk.

More of our revenues will depend on less capital-intensive, but potentially more volatile earnings from fee-based products. Opportunities are created to provide employers and employees with advice on how best to manage their retirement savings.

What are we doing about it?

To limit risk, we match our assets and liabilities as closely as possible. This asset-liability matching is an important part of our overall capital management. We have also shifted our business so that proportionally less of our earnings come from spreads on interest rates and more from fees. And we have guarded against any future sharp rise in interest rates by hedging our exposure. In addition, we have also taken the opportunity to refinance some of our debt at a lower interest rate.