Here’s another warning that prolonged, ultralow interest rates could eventually devastate pension funds and life insurers.
On Wednesday, the Organization for Economic Cooperation and Development, a Paris-based think tank said extremely low rates fueled by quantitative easing from global central banks are a serious threat to the solvency of pension funds and life insurers. That’s a message investors have heard from bond guru Bill Gross, and the International Monetary Fund. And it’s even been acknowledged by European Central Bank President Mario Draghi.
In a report, the OECD said its main worry is that pension funds and life insurance companies, desperate to match the levels of returns promised to policyholders and beneficiaries when interest rates were higher, will join the “search for yield.”
Pension funds and life insurers “are feeling the pressure to chase yield themselves, and to pursue higher-risk investment strategies that could ultimately undermine their solvency. This not only poses financial sector risks, but potentially jeopardizes the secure retirement of our citizens,” said OECD Secretary-General Ángel Gurria in a speech.
Read the full article at MarketWatch.com
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