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June 03, 2013 at 10:31 AM
The Federal Reserve System could be described either as a homicidal friend of the disability insurance community or a loving enemy.
On the one hand: The Fed is terrible for the supply side of the life insurance industry. The Fed makes it hard for insurers to write any kind of product with a long time horizon, including long-term disability insurance.
The Fed is keeping interest rates very low, in part in an effort to juice the economy, and in part to encourage investors to invest in other types of more profitable investments.
The Fed, meanwhile, is letting insurance regulators, rating agencies and others shackle insurers to bonds issued by government agencies and by giant corporations that are too big to fail. My personal definition of a company that creates SIFI risk because it’s just plain too big to fail: Any company that is considered suitable for a life insurance company’s investment portfolio.
So, in effect, the Fed is helping insurance regulators and rating agencies to force life insurers to create systemic risk, whether the life insurers want to do that or not.
