In addition to the fact that any claims related to guaranteed insurance accounts are pari-passu with other policyholders and ahead of general creditors, insurance companies are highly regulated with rigorous risk management and oversight processes and subject to periodic examinations by the state insurance departments. Reserves prescribed by insurance laws are held against the liabilities to protect against losses. Rating agencies, which assess an insurance company’s financial strength and ability to meet claims, examine the insurer’s guaranteed insurance accounts along with other products when assigning a financial strength rating.
Insurance firms have long histories in the guarantee business and a strong time-tested commitment to the market. Guaranteed insurance accounts performed well through the credit crisis by consistently generating positive returns. These accounts are often flagship structures offered through the insurance company’s retirement and other full service platforms and the company has a vested interest to preserve them. Plan fiduciaries perform their due diligence by learning about the financial health and longevity of the company both initially and on an ongoing basis to monitor developments.
Selecting the stable value solution that is best for a plan requires analysis of the different types of stable value funds available, and while all stable value funds seek to preserve capital and provide competitive returns, there are differences between the various types offered today. Considering and understanding these differences is fundamental to the selection, monitoring, and ongoing due diligence for stable value. For guaranteed insurance accounts, analyzing and understanding the financial strength of an insurer is important, as is evaluating the risks that these products address. Further, the Department of Labor’s regulation on the selection of annuity providers safe harbor for individual plans[i] as well as Interpretive Bulletin 95-1, although intended for defined benefit plans’ selection of annuity providers, offer frameworks for the analysis, selection, and monitoring of insurance company general accounts.
[i] Federal Register, Volume 73, Number 195, “Department of Labor, Employee Benefits Security Administration 29 CFR Part 2550, Selection of Annuity Providers–Safe Harbor for Individual Account Plans,” pages 58447-58450.