By Jenny Holly Hansen | WBN News | April 16, 2025

As headlines continue to highlight the U.S. government's ongoing sale of Treasury Bonds and the resulting spike in interest rates, many business owners are asking a simple question: What does this have to do with the cost of insurance? While the connection may not be obvious at first glance, the ripple effects of these financial moves stretch deep into the insurance industry — and ultimately impact what you pay for coverage.

When the U.S. government issues large volumes of Treasury Bonds, it often leads to higher bond yields. This happens because more bonds in circulation require better returns to attract buyers. If the supply of bonds outpaces demand, their prices drop, and yields rise as a result. Higher yields on government bonds don't just affect government finances — they set the tone for interest rates across the economy, including those that influence the returns insurers expect from their investments.

Insurance companies are some of the largest institutional investors in government bonds. These assets provide stable, predictable returns that help insurers meet future claims obligations. On the surface, rising bond yields can be a good thing, offering better returns on new investments. But there's a trade-off: the value of existing bonds, which were purchased at lower interest rates, decreases. This erosion in value can weaken insurers’ balance sheets. To compensate, insurers may be required to adjust their capital reserves or reprice their risk exposure — both of which contribute to higher insurance premiums for policyholders.

Additionally, rising bond yields often signal broader economic shifts, particularly concerns about inflation or expectations of tighter monetary policy. Inflation has a direct impact on insurance. As the cost of materials, labor, and services increases, so do the costs of claims — whether it's rebuilding after a fire, replacing a vehicle, or covering legal liability. Insurers, anticipating these rising costs, must raise premiums to remain solvent and keep pace with future claim obligations.

The effects don’t stop there. Insurers routinely purchase reinsurance to protect themselves from large-scale losses and to stabilize their portfolios. But the reinsurance market is global — and when U.S. Treasury yields climb, global investors often move their money into these safer, higher-yielding assets. This shift makes it more difficult and more expensive for reinsurers to raise capital. As their costs rise, reinsurers increase their prices, and insurers pass that added cost onto businesses and consumers in the form of higher premiums.

In short, the selling of U.S. Treasury Bonds contributes to higher yields, which ripple through the financial system. These changes influence everything from inflation expectations to insurer investment performance and the cost of reinsurance — all of which come together to affect the pricing of your insurance policies. Understanding these broader market forces can help you make more informed decisions about your coverage and when to review your policies. If you're unsure whether your insurance program is still aligned with today’s economic climate, now might be the right time to have that conversation.

Let’s Keep Talking:

Jenny is a business insurance broker with Waypoint Insurance.

She is also a business development consultant with Impresario Partners, helping Canadian Business expand overseas.

She can be reached at 604-317-6755 or jhansen@waypoint.ca. Connect with Jenny on LinkedIn at https://www.linkedin.com/in/jenny-holly-hansen-365b691b/.  Connect with Jenny at BlueSky: https://bsky.app/profile/jennyhollyhansen.bsky.social

Let’s Meet Up:

Jenny Holly Hansen is a cohost with Chris Sturges of the Langley Impact Networking Group. You are welcome to join us on Thursday’s from 4pm to 6pm at: Sidebar Bar and Grill: 100b - 20018 83A Avenue, Langley, BC V2Y 3R4

TAGS:  #Jenny Holly Hansen #U.S. Treasury Bonds #Increased Insurance Premiums #Reinsurance

Share this article
The link has been copied!