...Declining Bond Yields Bond yields have continued to decline in the prolonged low interest rate environment, dragging down life insurers' portfolio yields. Bond yields for life insurers have declined steadily to 4.96% in 2014 from 5.76% in 2010. The decline in yields has been steeper for companies with growing general account product sales. The overall yield decline would have been more pronounced if not for make-whole payments and prepayments on fixed- income securities. However, these payments have only caused a temporary offset to low bond yields, as the proceeds are reinvested in lower yielding securities. Portfolio yields have also been bolstered by strong performance on Schedule BA assets, which is not sustainable. Liquidity Traded for Yield There has been a modest change in the composition of life insurers' bond portfolios during the four-year period ending 2014, as insurers have traded liquidity for yield by slightly extending the duration of their portfolios. There has also been...
