What is a likely conservative investment return that insurers consider when setting premiums?

Insurers typically adopt a conservative approach when estimating investment returns to ensure that they can meet their future liabilities. A return of 2% reflects a very cautious investment strategy, often aligned with low-risk fixed-income securities or government bonds.

This conservative estimate helps insurers establish premiums that are sufficient to cover claims, administrative costs, and other expenses without taking undue risks in their investment portfolio. It acknowledges economic conditions that may lead to lower interest rates and provides a safety buffer for unexpected claims or market fluctuations.

Higher figures, like 4%, 5%, or 10%, could imply a more aggressive investment strategy that may not align with the conservative risk management philosophy that insurance companies usually adhere to. Insurers aim for stability and predictability, ensuring they can responsibly manage their obligations to policyholders.