Cove Insight: Industrial Alliance Insurance Announces 2023 SRIA Guaranteed Interest Rate
The dramatic losses in the bond and equity markets have impacted life insurance policy interest rates for all smoothed-rate accounts. For Industrial Alliance Genesis IRIS policies invested in the Stabilized Rate Investment Account (SRIA), the guaranteed SRIA interest rate for 2023 is 2.5%, down from 2.75% in 2022. As a result, the CLF loan rate for 2023 will decrease from 4.25% to 4.00%.
The 2.5% rate in 2023 is still a highly attractive guaranteed tax-exempt interest rate.
The main factors accounting for the net decrease in the credited rate for 2023 are a rise in bond rates, the timing of new deposits in recent years with resulting bond purchases in a low-interest rate environment, and the impact of the smoothing formula.
Industrial Alliance Smoothed Return Diversified Account (SRIA)
The SRIA fund is managed with a longer-term investment focus, designed to achieve superior returns while minimizing the potential for capital loss within the fund. The portfolio of assets in the funds is comprised of high-quality fixed-income investments such as bonds and commercial loans, with the balance invested in selected equities. The annual SRIA credited rate is determined using a specialized smoothing formula developed by Industrial Alliance. The objective of the smoothing formula is to significantly reduce yield volatility.
The historic performance of the SRIA Fund is as follows:
As of October 31, 2022, the total asset value of the SRIA was $762 million. At that date, approximately 65% of the assets were invested in private loans, 30% in high-quality bonds, 3% in common shares, and 2% in alternative assets (private debt and mortgages). The average duration of the bonds is approximately ten years.
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