Now More Than Ever

May 10, 2022

America’s life insurance companies invest $7.4 trillion in the U.S. economy – $572 million every day – making the industry one of the largest sources of investment capital in the nation. Life insurers’ safe, conservative investments allow them to fulfill their long-term guarantees to the 90 million American families who rely on them for financial protection.

The COVID-19 pandemic reaffirmed the vital importance of life insurance. Life insurance benefit payments were at record levels in 2020, and life insurance sales growth last year was the highest in 40 years.

Now more than ever, Americans recognize the enduring value of life insurance. That is why life insurers were troubled by an initial proposal by S&P Global Ratings that could have adversely impacted how life insurers select long-term investments that underpin their ironclad commitments to American families.

S&P proposed an extensive change to how it assesses insurers’ risk-based capital adequacy. One especially troubling provision would have notched credit ratings from other nationally recognized statistical rating organizations, forcing insurers to either hold artificially elevated levels of capital or to forego yield on high-quality assets. Another provision would have penalized U.S. insurers who use statutory accounting.

ACLI recently raised numerous concerns with the proposal. A bipartisan group of U.S. House members, the U.S. Department of Justice and state insurance regulators also weighed in.

Because of the comments from ACLI and others, S&P withdrew its proposed approach to notching. The rest of the proposal remains. S&P plans to offer a revised proposal later this year.

ACLI recognizes S&P’s need to periodically review and update its capital adequacy methodology for insurers. But the changes must be transparent and based on objective, empirically supported data.

Stringent state laws govern life insurers’ solvency and capitalization. Insurers invest premiums received on policies, annuity contracts and other products, and set aside assets in reserve to meet obligations whenever they arise. Insurers will often shape their long-term investment and capital strategies to conform with capital model requirements from rating agencies like S&P.

That’s why it is essential that the upcoming proposed changes to S&P’s methodology are carefully crafted. Above all else, they must not jeopardize the ability of life insurers to make long-term investments that fuel America’s economy and support America’s families.

Kristin Abbott

Kristin Abbott is Counsel at the American Council of Life Insurers (ACLI). Her responsibilities include, among other things, co-staffing the privacy and global risk management committees. She joined ACLI in 2011.