A team that helps the U.S. Treasury Department monitor potential threats to the financial system is scoffing at the idea that life and annuity issuers are immune to "runs on the bank" and other causes of sudden failure.
The department's Office of Financial Research has included a new section on how life insurers can collapse in its latest annual report to Congress.
The office has not suggested that U.S. life and annuity issuers are facing more problems than they were a year ago, that life insurers are weaker than other types of financial services sector players or that they need any new forms of regulatory oversight or other action.
But the office observes that "life insurers are vulnerable to interest rate and credit risk affecting their investment returns and to mortality, morbidity, longevity and other risks associated with the policies they issue."
What it means: The financial regulators working in the administration of President Joe Biden are pushing back against the idea that life and annuity issuers are different from banks and need different kinds of rules and oversight.
Those views might not have much influence on the incoming administration of President-elect Donald Trump, but they could eventually lead to life insurers facing new risk management proposals.
The Office of Financial Research: Congress created the Office of Financial Research in the Dodd-Frank Act of 2010, in an effort to keep the kinds of poorly tracked financial system problems that caused the 2007-2009 financial crisis from causing another financial crisis.
The backdrop: When federal regulators have tried to apply bank-like risk-management rules to life insurers, life insurers have argued that they are different from banks because life insurance policies and annuity contracts are different from bank savings accounts and checking accounts.
Banks have only a small amount of capital on hand per dollar stored in a savings or checking account, and they must be prepared to make much of the cash in those demand accounts available to customers on short notice.
Life insurers have noted that the life insurance policies and annuity contracts they sell are backed by reserves equal to the benefit liabilities and are designed to stay in place for decades.
