Federal Insurance Office Eyes Registered Indexed-Linked Annuities

What You Need to Know

The FIO is a product of the Dodd-Frank Act.
COVID-19 is still in the FIO annual report, but it no longer has a large section all to itself.
Long-term care insurance is still in there.

Officials at the Federal Insurance Office — a division of the U.S. Treasury Department — are thinking about registered index-linked annuities.

State government agencies handle most regulation of the business of insurance in the United States. Congress created the FIO, with a provision in the Dodd-Frank Act, in an effort to help the Treasury Department understand what’s happening in the insurance sector.

In 2020, for example, the FIO devoted a large section of its annual report to the possible effects of the COVID-19 pandemic.

In the FIO’s new annual report, which came out Thursday. officials have had a table of contents entry for RILAs and a box talking about RILA basics:

RILA account returns are linked to changes in a specified security index such as the S&P 500. RILAs expose the annuity provider, usually an insurance company, to fluctuations in equity market returns. These fluctuations require insurer hedging or the ability to absorb losses arising from the boundary or buffer features in the RILAs. When an insurance company hedges with equity derivatives transactions, such arrangements generates interconnectedness with other firms in the financial sector.

FIO officials noted that RILA sales have grown rapidly in recent quarters.

“FIO will continue to monitor RILA-related issues,” the agency said.

Steven Seitz, the FIO director, was appointed to his post in 2019. He may have an interest in the futures contracts inside RILAs, because, before he worked for the Treasury Department, he was at the Commodity Futures Trading Commission. The commission oversees futures contracts.

The FIO also included sections in the new annual report on topics such as private equity ownership of insurers and the future of long-term care insurance.

Long-Term Care Insurance

Long-term care insurance issuers generated $152 million in new annualized premiums in 2020 from the sale of 49,000 stand-alone LTCI policies, according to LIMRA statistics cited by the FIO.

The number of new LTCI policies sold was down 11%, and new annualized premiums were down 9%, according to the FIO.

Sales of arrangements that combine long-term care benefits with a life insurance policy or annuity contract fell to $3.7 billion last year, from $4.8 billion the year before, but, “over the longer term, the outlook for combination products may be brighter,” the FIO suggested.

The FIO does see a growing social need for mechanisms people can use to pay for long-term care, the agency said.

Private Equity Owners

Private equity firms that control life life insurers had a section in the FIO annual report last year, and they have their own section, with a table of contents entry, this year.

The FIO again raises the possibility that some private-equity-controlled life insurers may increase investment returns on their assets by investing too much in arrangements that would be hard to sell quickly in an emergency.

“In addition, reliance on offshore captive reinsurers and complex affiliated sidecar vehicles in the [private equity]-owned enterprise may be used to maximize capital efficiency and introduce complexities into the group structure,” the FIO said.