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Unformatted text preview: Wall Street Journal HEARD ON THE STREET OCTOBER 1, 2011 Lost Decade Looms Over Insurers by Hester Plumridge The latest fear for insurers? Turning Japanese. Roughly a decade ago, a number of Japan's life insurers failed, weakened by persistently low interest rates. Such an outcome doesn't look imminent for European or U.S. firms, but investors should still be aware of the risks. Low yields mean poor returns on insurers' investment portfolios and less demand for new savings products, as the returns on offer look less attractive. Market expectations of U.S. life insurers' 2012 earnings will have to be cut by up to 5% if 10-year Treasury yields remain within a 2.0%-2.5% range, notes Morgan Stanley. Expectations were already low, since low interest rates aren't a new phenomenon. In this environment, life insurers suffer most, since they are typically unable to reprice policies annually, as general insurers do. Many life insurance products come with some guaranteed level of income over the life of the policy, which could be 30 years or more. That presents a problem for business written when the life of the policy, which could be 30 years or more....
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- Spring '12