State Insurance Regulators are Launching Assault on 401(k)s and Life Insurance


The National Association of Insurance Commissioners (NAIC)—a multistate standard-setting organization composed of insurance regulators from all 50 states, the District of Columbia, and U.S. territories—is increasing arbitrary regulations on life insurance companies that invest in residual premiums and interests. . Asset-backed securities (ABS) (for example, investment vehicles such as collateralized debt obligations, and securitizations of auto loans, student loans, and credit cards).(1) Implementation of the proposed rules would discourage life insurance companies from investing in residual ABS premiums, which could reduce returns for U.S. workers' defined contribution (DC) plans (for example, 401(k)s). ATR is deeply concerned that the Biden Administration and unions are pressuring the NAIC to prevent financial companies from making DC plans more attractive to retirees.

Third-party data and analysis provide evidence that the NAIC's proposed rules go too far. NAIC convenes on March 17, 2024(2) and determined that they would open a comment period to allow the public to offer opinions on Oliver Wyman's (OW) report that contradicts the NAIC's proposed rules.(3) The OW report finds that common stock losses exceed losses on residual ABS tranches. NAIC's proposed increase in equity capital for residual ABS tranches from 30 percent to 45 percent is not consistent with the level of residual tranche risk observed within the OW report. Meanwhile, the common stock charge is 30 percent. The OW report provides support for a 30 percent capital charge, not a 45 percent charge.

The NAIC's proposed rules should be delayed by at least a year. If the NAIC fails to delay implementation of the 45 percent capital charge, the charge should remain at 30 percent. This is more than fair because the NAIC has not conducted a comprehensive cost-benefit analysis of increasing the capital charge to 45 percent. Furthermore, the OW report clearly shows that the NAIC's proposed rules are unnecessary. To date, no concrete quantitative analysis has been conducted to justify the NAIC's proposed rules.

Additionally, NAIC's proposed rules should not be implemented solely to create parity with federal regulators' implementation of Basel III endgame bank capital requirements.(4) These bank rules were originally created by unelected bureaucrats in Basel, Switzerland. The NAIC should not impose rules for life insurance companies that would conform to burdensome European-based regulations.

The NAIC should not arbitrarily and arbitrarily increase the capital charge for residual ABS tranches without appropriate quantitative analysis. Because insurance is primarily regulated at the state level, state regulators hold significant power over the insurance industry. Although NAIC is not subject to Administrative Procedure Act (APA),(5) As a matter of due process, the NAIC should consider following the principles of the APA and allow a structured notice-and-comment process that considers and analyzes hard data. Today, the NAIC has no solid evidence to suggest that increasing the capital charge for residuals to 45 percent would provide any material benefit to life insurance companies or their customers.

The NAIC's proposed rules would force annuity providers to keep significantly more cash on hand. Essentially, this will limit the investment options for DC schemes. This is particularly harmful for Americans because annuities provide guaranteed lifetime income.(6) The unions and the Biden administration are pursuing these burdensome rules to hinder DC plans. Democrats and unions know that empowering individual investors in DC plans would significantly curtail their abilities to use shareholder activism to advance left-wing political goals through defined benefit (DB) plans.

Hospitality union UNITE HERE is currently pressuring pension funds to avoid annuity products offered by insurance companies backed by private equity.(7) Unions are also suing(8) Public companies are attempting to switch to DC plans that offer annuity options through private equity-backed insurance companies.(9) One reason for this is obvious: Left-wing activists rely on federally-controlled DB schemes to force private companies to comply with their environmental, social and governance (ESG) agendas.(10)

The Financial Stability Oversight Council (FSOC), the Federal Insurance Office (FIO), and the International Monetary Fund (IMF) are also pressuring the NAIC to pursue these tougher rules. FSOC(11) and imf(12) Both published reports highlighting their concerns about the risks of private equity in life insurance. FIO, which falls under the U.S. Treasury Department, is working with the NAIC to collect climate risk data from insurers.(13) FSOC(14) It is run by President Biden's Treasury Secretary and is composed of President Biden's financial regulators. Additionally, the US representative on the IMF's executive board is Biden's nominee.(15)

The U.S. Department of Labor, which regulates private employer-sponsored DC plans, is also making it harder for private companies to diversify their investment options.(16)

Congressional Democrats such as Senator Sherrod Brown (D-Ohio) have also pressured the NAIC to investigate the risk of private equity in the insurance industry.(17) Republican insurance commissioners should not use Democrats' talking points to increase burdensome regulations when there is no evidence to suggest that the rules are commensurate with the observed investment risks.

The attack on DC's plans is the result of partisan politics. Democrats and unions must not be allowed to hijack the NAIC to empower themselves and suppress the retirement savings of American workers.


(1) https://content.naic.org/about,

(2) https://content.naic.org/sites/default/files/national_meeting/rbcire-summary-0317.pdf,

(3) https://content.naic.org/sites/default/files/inline-files/Oliver%20Wyman%20Residual%20Tranche%20Report.pdf,

(4) https://docs.house.gov/meetings/BA/BA20/20240131/116775/HHRG-118-BA20-Wstate-BashurB-20240131.pdf,

(5) https://www.justice.gov/sites/default/files/jmd/legacy/2014/05/01/act-pl79-404.pdf,

(6) https://www.actuary.org/sites/default/files/2022-08/IB.SECUREact.8.22.pdf,

(7) https://www.ai-cio.com/news/union-warns-pension-funds-to-be-wary-of-private-equity-backed-prt-insurers/,

(8) https://www.planadviser.com/2nd-lawsuit-filed-att-prt-deal/,

(9) https://www.investmentnews.com/life-insurance-and-annuities/news/companies-transferred-billions-in-pension-assets-to-annuities-here-come-the-lawsuits-250826,

(10) https://nypost.com/2024/03/21/opinion/unions-using-esg-to-control-workers-and-drain-americans-retirement-savings/,

(11) https://home.treasury.gov/system/files/261/FSOC2023AnnualReport.pdf,

(12) https://www.imf.org/en/Publications/global-financial-stability-notes/Issues/2023/12/13/Private-Equity-and-Life-Insurers-541437,

(13) https://home.treasury.gov/news/press-releases/jy2162,

(14) https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/financial-stability-oversight-council/about-fsoc/council-members,

(15) https://www.imf.org/en/About/executive-board/eds-voting-power,

(16) https://retirementincomejournal.com/article/of-private-equity-and-pension-risk-transfers/,

(17) https://www.brown.senate.gov/newsroom/press/release/sherroad-brown-continues-push-private-equity-firms-involvement-insurance-industry,


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