Life Insurers Back Libor Transition Bill

What You Need to Know

Rep. Brad Sherman, D-Calif., introduced a bill to make SOFR the default alternative for financial contracts.
The American Council of Life Insurers supports the bill.
Members of the House Financial Services Committee approved it by a voice vote.

The American Council of Life Insurers (ACLI) is supporting a bill that could affect what happens to many U.S. financial contracts when Libor — the London Interbank Offered Rate — goes away.

The bill, H.R. 4616, would make SOFR — the Secured Overnight Financial Rate — the default alternative for financial contracts that include no provisions for coping with the death of Libor.

Rep. Brad Sherman, D-Calif., introduced the bill July 22.

The bill has no co-sponsors, but members of the House Financial Services Committee approved a revised version at a meeting last week by a voice vote.

Libor and SOFR

Banks in London developed Libor in the 1980s. Libor serves as a base rate for calculating the variable rates used in loan contracts and other contracts.

Libor affects rate calculations for about $200 trillion in outstanding U.S. contract value.

The ACLI’s Perspective

The ACLI, a group that represents about 280 U.S. life insurers, said in an announcement of its support for H.R. 4616 that promoting a smooth transition away from Libor is important to life insurers.

“One common life insurer use of Libor has been in derivatives, which help companies maintain stable capital investments,” the ACLI said. “This enables life insurers to offer consumers a wide variety of affordable financial security products.”