Continuing low interest rates remain the primary concern ofnearly half of the chief financial officers at North American lifeinsurance companies, according to a new report.

Professional services firm Towers Watson (NYSE, NASDAQ: TW), New York, released thisfinding in a summary of results from a survey of North AmericanCFOs. Thirty CFOs, 19% of the 162 CFOs invited, participated in theresearch, titled, “Life Insurance CFO Survey:Low Interest Rate Environment.”

The respondents are primarily from large and midsize lifeinsurance companies in North America; 67% of responding companieshave assets of $5 billion or more, and 20% are multinationals.

The research reveals that low interest rates are the primary business concern of 45% ofthe survey respondents. The CFOs say that a prolonged low interestrate environment is the “greatest threat” to their companies.

Additionally, 87% of CFOs believe the likelihood of a majordisruption to the economy in the next 12 to 18 months is 50% orgreater. More than a quarter of respondents (27%) say thelikelihood is 75%; and 7% believe the likelihood of a majordisruption is almost certain.

More than two-thirds (68%) of CFOs say they expect a three- tofive-year period of low interest rates, followed by a gradualincrease, the report finds. When asked to consider theirorganization's interest rate risk exposure, CFOs' metrics ofgreatest concern were their levels of statutory capital (63%),followed by their level of statutory earnings (53%).

“Life insurers are adversely affected by low interest rates, inpart because of lower returns on their investments and previousguarantees promised to their policyholders,” says John Fenton, asenior life insurance consultant at Towers Watson. “In addition,the low interest rate environment makes some of their products—suchas traditional fixed universal life and annuities—very unattractive in the marketplace.”

To counteract the low interest rates, more than half (57%) ofCFOs say their company has established risk tolerance limits forinterest rate risk. But 43% have not done so, and more than 40% ofCFOs with established rate risk tolerance limits indicate they havebreached them.

“This raises serious questions about how these companies aredealing with interest rate risk management,” says Karen Wells,senior investment consultant at Towers Watson. “Most companies havea critical need to revisit their interest rate risk strategy inlight of the current economic environment.”

The survey finds that CFOs have increased the cost of insurancerates for interest-sensitive products to better manage theirinterest rate risk. Forty-three percent of respondents say that,based on future expectations, the language of their policy formsallows them to change cost of insurance (COI) rates under theuniversal life products they sell based on investment earnings,while 50% say they can change COI rates for variations in mortalityalone.

In the past five years, just over a third of respondents haveincreased COI rates, expense loads or both on at least some part oftheir life block, the report adds.

Nearly all respondents (96%) say they have reduced their minimumguarantee on fixed-account products. More than half (56%) haveadjusted premium rates, reduced living benefit guarantees oradjusted fees on annuity products (56%). Or they have ceased orsignificantly curtailed sales of some products (54%). One-quarterhave exited product segments, and another 13% plan to do so in thenext six months, the survey finds.

Despite their unfavorable near-term outlook on the economy, CFOsare more optimistic about improvements in their financialresults.

Seventy-one percent of respondents expect increases in new lifeand annuity premiums of 4% or more in the first quarter of 2012,compared to the same period in 2011.

More than 80% expect GAAP net revenue to grow by 4% or more inthe first quarter, compared to the same period in 2011.

When compared to expectations from Towers Watson's last CFOsurvey, this represents a notable increase in optimism: When askedabout expectations for the third quarter of 2011, only 43%predicted increases in new life and annuity premiums of 4% or more.And just 50% anticipated a GAAP net revenue increase of 4% ormore.

Adding to the sense of optimism, 50% of respondents predict GAAPnet income will increase by 4% or more compared to the firstquarter of last year, the survey reveals.