Volatility and the Financial Market One practical approach for businesses to raise funds and for individuals to profit from the success is investing in the stock market. However, the market’s fluctuations and volatility can be alarming for many individuals. Market fluctuations are common, but occasionally our emotions can overwhelm us. Volatility characterizes the financial markets’ routine ups and downs. When portfolio volatility grows, it can be challenging to remain invested and adhere to one’s strategy. That’s human nature. Recent trends have shown that market volatility significantly affects annuity issuers.
Market Volatility and the Huge Slam on Annuity Issuers Some life and annuity issuers may have had their roofs blown off by the financial winds in the second quarter. In a newly published earnings preview article, a team at Morgan Stanley led by Nigel Dally evaluates the storm resistance of the corporations. The end of the second quarter was June 30. UnitedHealth Group, a health insurance company, was the first to report its earnings for the new round of life, health, and annuity issuers on July 15. Analysts believe that fluctuations in currency exchange rates, poor performance by hedge funds and private equity funds, and the effects of rising interest rates on operations unrelated to insurance contributed to the damage caused by falling stock prices during the second quarter. However, rising interest rates and a significant drop in COVID-19 deaths likely helped second-quarter results. The S&P 500 Index’s second-quarter average level was 8.1% lower than its first-quarter average. Analysts expect this to have a negative impact on the profitability of variable annuities, asset management, and retirement, which are more market sensitive.
What This Implies The significant publicly traded life and annuity issuers that Morgan Stanley follows are still performing well. They shouldn’t have trouble paying for the life and annuity insurance they already sold to your customers. Morgan Stanley monitors these companies. On the other hand, securities analysts and investors may scale up their efforts to discourage issuers from providing fresh unhedged guarantees. If your clients are interested in products that protect their account value from stock market changes, they should consider buying them while they are still available.
Headwinds A tailwind is a favorable wind that blows from the rear, fills the sails, and increases speed. A headwind blows directly into the boat’s bow and forces it to travel in a zigzag pattern to move forward. Analysts say that although the recent increase in interest rates is generally beneficial for life and annuity issuers, by increasing the rates insurers receive on their trillions of dollars in corporate bonds, rising rates can also have a negative impact on the fee income insurers earn from managing fixed income portfolios for external clients. Currency swings could impact large multinational insurers like Aflac, MetLife, and Prudential because their value in comparison to the dollar dropped in the second quarter.
Covid-19 Impact After reaching 156,000 in the first quarter, Covid-19-related deaths declined substantially to around 32,000 in the second quarter. Analysts predict this will have little impact on investors’ view of life, health, and annuity issuers, given they were already anticipating a substantial decline in pandemic mortality during the second quarter.
Market Volatility and the Future While no one enjoys a market downturn, the risk you accept when investing in equities is precisely why you should gain a more significant return over a more extended period. This is referred to as a risk premium. Accepting the risk of investing in an uncertain asset is rewarded with a higher return. When you invest money in the stock market, you essentially invest in companies with a history of generating profits. Investing in a diverse range of companies essentially bets on the economy’s growth. The U.S. and global economies have grown dramatically over the last century, and there is every reason to believe this trend will continue. Our population is increasing, technology is improving, the world is becoming more linked, and living standards are rising.
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