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April 10, 2015 at 09:45 AM
I think some of the key enemies of U.S. civilization as we know it might actually be the nice, caring, intelligent, creative, honest, generally terrific people who make sure insurance companies and pension plans invest in what is thought to be a prudent fashion.
This thought came to me recently at the Intercompany Long Term Care Insurance (ILTCI) Conference, as I was trying to wrap my head around the idea of Medicare or Medicaid jumping into long-term care (LTC) finance, and doing more to pay for LTC services without pretending that they’re just paying for small amounts of post-acute care, or just participating in a limited pilot program for a limited group of people.
Of course, one of the biggest problems LTCI issuers face right now is that the Federal Reserve Board is pushing investors to invest in riskier classes of investments by holding short-term interest rates near zero.
Insurance companies pretty much have to invest in ultra-safe corporate bonds that are paying just a little more than the U.S. government. Because, otherwise, those kind, sensitive, intelligent, wonderful people at the rating agencies and regulatory agencies who police insurance company investment portfolios would write beautifully written but stern commentaries.
See also: NAIC Panel Looks at FDIC-Backed Notes
If the federal government would expand efforts to, quite sensibly, set money aside for the cost of baby boomers’ future LTC needs, it would probably park the money in what are supposed to be very safe, low-rate investments, mainly, government bonds.
The result is that any corporation with a high enough rating to get its bonds into insurance company and pension fund portfolios, and any government agency that issues bonds that are popular with insurance companies and pension funds, has an unfair edge when it comes to borrowing. For example: XYZ Giant Insurance Company, and consumers with spotless credit records, who can qualify for government-guaranteed mortgages, can borrow money for free, while other players, such as insurance agencies that want to expand their agencies, are all but shut out of the credit markets.
