U.S. insurance companies call on Chilean Congress to reject new annuity withdrawal as pandemic aid

RIO DE JANEIRO, BRAZIL – The American Council of Life Insurers (ACLI) issued a new statement regarding discussions in the Chilean Congress on the withdrawal of life annuity funds.

Brad Smith, ACLI’s Chief International Officer, said that “the new bill before the Chilean Congress will further undermine Chileans, particularly women, who are trying to secure their families’ financial future. We urge members of the Chilean Congress to oppose this measure and take action to strengthen retirement security for consumers.”

But this time, the issue escalated further and reached U.S. President Joe Biden’s administration after ACLI President and CEO Susan Neely asked him to intervene on the matter.

On August 17, the insurance executive sent a letter to U.S. Treasury Secretary Janet Yellen expressing concern from insurance companies over what is happening in Chile. In this respect, she called for the issue to be considered by the Financial Stability Board (FSB) and the G20.

In the letter, Neely alerts Yellen “to the deterioration of the rule of law and the stability of long-term investments in Chile. ACLI supports these comments and would call on the Treasury Department to consider how the FSB and G20 may address this emerging risk to the G20’s goals.”

“The defunding of private pension assets recently adopted and currently being implemented, and the violation of the irrevocability of annuity contracts are fundamentally inconsistent with Chile’s commitments to the OECD, and directly violate consumer protection and financial and market stability as mandated by international standards recognized by the FSB,” the letter adds.

It further states that “the micro and macroeconomic will disadvantage our consumers and we hope that this negative defunding trend will be halted, but I urge your Department’s consideration on how the United States may support the security of the Chilean funded pension system model against defunding and expropriation.”

She further stated that “we will seek to mobilize other international institutions where the U.S. has actions to support prudential supervision, as required by the G20 and monitored by the FSB and IMF. Should the Department be able to help raise this issue as inconsistent with international standards, we hope that international attention may curb further defunding and support prudential supervision to protect consumers and financial stability.”

“These actions are disproportionately undermining the middle class and women in their retirement security, and we believe we are justified in raising this to the G20, which is why we support the commitment of the Global Federation of Insurance Associations,” the statement ends.

Moreover, the president of the Global Federation of Insurance Associations (GFIA) also sent two other letters to Ignazio Visco and Randal Quarles.

“Private pension systems will play a key role in the recovery from the ongoing pandemic in both developed and emerging markets. Therefore, and due to the current and growing political pressures on private pension systems in several markets, we urge you to include statements on the need to ensure the sustainability of pension systems in your recommendations to the Italian presidency of the G20.”

“While we appreciate the efforts already made by the FSB in this regard, we wish to draw your attention to the continued actions of the government of Chile which has defunded private pension funds of nearly 5 million Chilean workers in an effort to address the economic stress of the pandemic. This violates the sanctity of annuity contracts with no reasonable justification,” states the letter sent to Quarles, which is very similar to the one sent to Visco.

It argues that “political decisions in Chile have further sacrificed the rule of law and capital market stability in the search for timely solutions to the economic pressures caused by the pandemic. These actions run counter to the FSB principles that underpin the measures taken by the official sector to manage the economic impact of Covid-19.”

“We urge the FSB to emphasize the importance of pension systems supported by private capital in its policy suggestions for the G20 summit recommendations. Specific suggestions in this regard would enable the Italian G20 presidency to examine the role that long-term capital asset accumulation could play in facilitating recovery from the Covid-19 pandemic.”

Finally, it calls on the FSB to “raise these issues among the members of the Regional Consultative Group for the Americas, where Chile is active, to highlight the damage to Chile’s financial stability, the protection of market integrity and consumer protection, and potential knock-on effects in the region.”