What on the economic front concerns you?
We see the slow economic recovery most clearly in the returns on the investment portfolio. We're now predicting new money going into bonds going to work at less than 5% — that's down 100 basis points in the past 9 to 12 months. To the extent that our investment income is lower, we earn less money. We're modeling all sorts of scenarios out five or six years to understand what [happens] if this is a protracted environment with cyclically long low interest rates.

How do you mitigate the impact of low interest rates?
We're being careful not to lock in 30-year bonds. We also bought some very out-of-the-money hedges a year ago, before the rates dropped for our
interest-rate-dependent products. So if interest rates go down we get some big payoffs on these hedges. We have guaranteed products, but the minimum interest rates are well below what we're earning right now. They'd have to stay down for five or six years for this to emerge as a problem.

But on the [liability] side, lower interest rates mean higher reserves, because we carry our reserves at the present value of future benefits. [Low interest rates] get you on both sides of the balance sheet. Ultimately, if rates stay down, some products will have to be repriced, like a disability product, which provides income for life if you're disabled. It has a certain interest-rate assumption in it. Everyone in the industry will have to reprice, so it ripples not just through [a company's] reported results but also through the pricing and economics of these products.

Does the sustained lull in the economy also present opportunities?
This economy offers opportunities to go into asset classes where we were underweighted in the past. We recently partnered with Lowe, a well-known real estate organization that syndicates real estate investments in things like hotels and resorts and other real estate ventures. We'll be looking opportunistically for investments where we may be underweighted and which offer good upside in this economy.

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