Insurers Threaten to Sue Chile Over Law That Forces Them to Return Annuity Funds
(Bloomberg) -- Life insurers are warning Chile that they may have their day in court if a bill that allows people to demand early annuity payments is passed into law.
Principal Financial Group has begun formal consultations with Chile, a process stipulated in international trade agreements, due to losses stemming from pension withdrawal legislation. It may sue Chile in international courts in the future.
Besides letting Chileans tap their individual pension accounts, legislators have allowed people to demand insurers pay them 10% of the funds they paid at the time of buying annuities, with a ceiling of about $5,500.
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So far, Chileans have taken out almost $50 billion in pension savings while insurers have had to pay more than $1 billion from annuity accounts. Unlike pension funds that keep separate individual accounts from which they sell assets to raise money, life insurers have had to sell securities from their own balance sheets to pay.
This is increasing liquidity risks for the companies, insurance regulator Joaquin Cortez said in a presentation this week. A bill now making its way through Congress will allow another round of advanced payments and seven local insurers wouldn’t have enough funds to pay, the regulator said.
Ohio National and Zurich Insurance Group have already begun consultations on the same issue.
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