“A ‘Shadow’ Lending Market in the U.S., Funded by Insurance Premiums,” October 4, rightly notes that life insurers are “heavily regulated by the states” before, unfortunately, conflating the capital requirements of two very different financial institutions – banks and life insurers.

Life insurers match their assets to their long-term liabilities. Banks’ liabilities are generally shorter than insurers’, which is why life insurers are equipped to make investments banks cannot make, and why capital rules for life insurers and banks differ.

Life insurer investment activity is guided by legal requirements that they be prepared to fulfill promises to customers today, tomorrow or decades from now. That means every annuity or life insurance policy is backed by robust reserve requirements. Also, every insurer regardless of organization must show, through asset-adequacy testing, that they are holding assets to pay all of their future obligations under a variety of challenging economic conditions.

State regulators have other tools to assess and mitigate risk, which includes examining all reinsurance arrangements supporting life insurer guarantees. They use these tools. There is no hiding from regulatory constraints.

It’s a regulatory system that helped make sure life insurance companies were prepared for a pandemic that required them to pay more in annuity and life insurance benefits than ever before – and stay financially strong throughout the process.

Regards,
Susan Neely
President & CEO, American Council of Life Insurers