Adapting Life Insurers' Investment Strategies to Yield Drought in a Low Interest Rate Environment

This paper explores the impact of a prolonged ?yield drought? under persistently low interest rates on the investment strategies of life insurance companies operating in India and proposes a model for adapting those strategies in light of local market specifics. It examines the structural characteristics of India?s life insurance sector, analyzes the challenges posed by declining returns on traditional assets, and reviews international best practices, including asset - liability management (ALM) approaches, the use of derivatives for interest rate risk hedging, and portfolio diversification techniques. The study introduces an adaptive investment strategy model designed to strengthen the financial resilience of insurers by optimizing asset allocation while accounting for market - specific constraints. The primary objective is to assess the effects of sustained low interest rates on life insurers in India and to formulate actionable recommendations aimed at improving their long - term financial stability. The methodological framework combines a review of existing research, a comparative analysis of international experience (Germany, the United States, Thailand), and the development of a theoretical and practical adaptation model that integrates ALM, interest rate hedging, and diversification through alternative assets. The findings will be of interest to researchers and practitioners in financial engineering and investment management. In addition, the insights presented offer practical value to insurance executives and strategic analysts seeking to incorporate interdisciplinary approaches for managing portfolio risks and aligning corporate strategy with macroeconomic realities.