May RILAs, Pension Threat Transfers Squeeze Life Insurers in a Disaster?

State insurance coverage regulators are beginning to consider whether or not some forms of annuity separate accounts might have an effect on life insurers’ want for fast money in an financial disaster.

The Macroprudential Working Group, an arm of the Nationwide Affiliation of Insurance coverage Commissioners, mentions separate accounts related to registered index-linked annuities and pension threat transfers in a brand new draft of the 2023 liquidity stress framework.

The ultimate model of the framework will have an effect on insurers’ evaluation of their want for money and their entry to money, and the way these would possibly change in periods of financial stress.

What it means: Including RILAs and pension threat transfers to liquidity stress testing might have an effect on how regulators or others take into consideration RILA stability.

Regulators might additionally use any new RILA stress check outcomes to handle considerations of the Federal Reserve Board about life insurance coverage firm liquidity. The board recommended in a monetary stability report posted Friday that insurers could also be promoting too many merchandise that give prospects an excessive amount of capability to tug money out rapidly throughout a disaster.

The testing and pondering might have an effect on how effectively the insurers again purchasers’ life insurance coverage insurance policies and annuities throughout a market crash or different disaster.

The background: Up to now, regulators have requested insurers to say solely the cash-flow influence of assured advantages in liquidity stress testing, or LST, calculations, due to a perception that solely assured advantages might result in liquidity stress.

Now, within the draft 2023 framework, officers have penciled in a reference each to RILAs and to pension threat transfers.

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