A recent commentary in the Washington Post fails to make clear that a life insurance company reinsuring its annuity contracts still retains all of its obligations to policyholders.
The insurance company – whether it sold an individual annuity or a large group annuity to an employer as it assumed responsibility for paying lifetime income to pensioners – is on the hook to ensure its original promises are fulfilled. Reinsurance is merely one tool, among many, that insurers use to help manage the totality of their risk.
Insurance companies manage these risks while regularly monitored by a robust state regulatory system.
State regulators’ vast “toolbox” gives them deep, ongoing insights into insurance companies’ financial strength and risk-management strategies, as well as any complex, group annuity arrangements that involve cross-border reinsurance. They use the toolbox to intervene in a struggling company’s operations when necessary.
This system has helped ensure that no retiree whose pension has been shifted to an insurer’s annuities in at least 30 years has lost a penny of retirement income.
The fate of 777 Partners, the Bermuda-based reinsurer whose financial strength is being questioned, is unclear. What is clear is that state regulators have been coordinating with Bermuda-based regulators, whose system has been deemed equivalent to Europe’s strict regulatory regime.
If action is needed to protect U.S. policyholders, the state-based regulatory system will take it.
Susan K. Neely was President and CEO of the American Council of Life Insurers (ACLI), the nation’s leading trade association determined to help families live better lives by achieving financial security and certainty. As president and CEO, Neely drove public policy and advocacy on behalf of ACLI’s member companies that represent 93 percent of industry assets and serve 90 million families. She is CEO Emeritus through December, 2024.
