Life Insurers Back Libor Transition Bill

By Allison Bell

News August 03, 2021 at 03:03 PM

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The American Council of Life Insurers (ACLI) is supporting a bill that could affect what happens to many U.S. financial contracts when Libor — the London Interbank Offered Rate — goes away.

The bill, H.R. 4616, would make SOFR — the Secured Overnight Financial Rate — the default alternative for financial contracts that include no provisions for coping with the death of Libor.

Rep. Brad Sherman, D-Calif., introduced the bill July 22.

The bill has no co-sponsors, but members of the House Financial Services Committee approved a revised version at a meeting last week by a voice vote.

Libor and SOFR

Banks in London developed Libor in the 1980s. Libor serves as a base rate for calculating the variable rates used in loan contracts and other contracts.

Libor affects rate calculations for about $200 trillion in outstanding U.S. contract value.

Regulators began pushing to phase Libor out about 10 years ago, because of concerns that Libor is based on transactions in a market that is now small and easy to manipulate.

The United Kingdom organization that publishes Libor rates plans to shut the Libor system down at the end of 2023.

The Federal Reserve Board has worked to develop SOFR and make it a Libor alternative.

The ACLI's Perspective

The ACLI, a group that represents about 280 U.S. life insurers, said in an announcement of its support for H.R. 4616 that promoting a smooth transition away from Libor is important to life insurers.

"One common life insurer use of Libor has been in derivatives, which help companies maintain stable capital investments," the ACLI said. "This enables life insurers to offer consumers a wide variety of affordable financial security products."

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