According to the Insurance Information Institute, U.S. insurance companies in the aggregate hold about $8.5 trillion of cash and invested assets. These assets support insurers’ ability to pay claims to policyholders. In recent years, government bodies have attempted to influence these investments using the levers of insurance regulation—from state “name and shame” laws on investments in coal, to restrictions on investments in Iran, to calls from the Trump Administration to ease infrastructure investments. Understanding the background and interplay of the insurance laws that govern investments by carriers can provide some context to these developments and also shed light on a key aspect of solvency regulation of this critical U.S. industry.

Regulatory restrictions on insurance company investments are motivated by the risk that, if an insurer were to experience greater-than-expected losses on invested assets, the insurer might not be able to pay claims by policyholders. State legislatures and regulators cannot guarantee the performance of investments, of course, but they can and do impose guardrails on investment activity that, theoretically, reduce risk. Although often aligned with one another, the statutory tools and mechanisms used by regulators to conduct this oversight are not fully integrated, which can lead to some regulatory uncertainty and can affect investment activity.

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