Daniel Schwarcz - Government Hearings

  • (p25) - Daniel Schwarcz:
    • … the way you have to have disclosure is not by telling people here is what insurance is and here are the questions you need to think about.
    • You need to provide them with the information they need to make decisions.

2011 0914 - GOV (Senate) - Emerging Issues in Insurance Regulation - Senator Reed (D-RI) - [PDF-51p. VIDEO-Senate] 

2011 1116 - GOV (House) - Insurance Oversight and Legislative Proposals - pdf-131p 

(p24) - Mr. DUFFY. And if we look at the potential of a systemic risk that you are trying to be a visionary here and look into the future, if we give a little more authority for oversight on the Federal side, will that very much lessen the systemic risk for the future?
*Mr. SCHWARCZ. So, two things. First, I am not trying to be a visionary; what I am trying to do is actually say that you are not visionaries either. We don’t know. And that is why we need to adjust the system, take into account that none of us are visionaries, none of us predicted 2008, and that is why we need a flexible regime that is not hamstrung by preordained conclusions.
Mr. DUFFY. But I would say that with property and casualty insurance you are saying, listen, there is a potential for systemic risk in the future and, therefore, you want to head that off at the pass today. So in a way, I would say you are acting as a visionary.
Mr. SCHWARCZ. I will leave it to others to decide whether or not I am either a visionary or attempting to be one. But what I would say is that I don’t perceive much systemic risk in the property casualty realm right now right now. I perceive it more in the life realm, but I think that we don’t want regulatory assistance that
ensconces that viewpoint and doesn’t consider the possibility that it might be wrong.

  • Daniel Schwarcz
    • Why can’t I compare cash value products and have some sense of what is going on in the marketplace?
    • Because the notion—I mean, it really is a problem, and it is a problem that is under addressed because everyone is so focused on solvency that they forget all these other important regulatory issues. 

2011 0914 - GOV - EMERGING ISSUES IN INSURANCE REGULATION - 51p

  • PDF - p26
  • Video - 1:38:00
  • SUBCOMMITTEE ON SECURITIES, INSURANCE, AND INVESTMENT - COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE

  • 2011 0914 - GOV - Emerging Issues in Insurance Regulation - [pdf-51p, VIDEO-Senate] - Senate - Subcommittee on Securities, Insurance, and Investment - Committee on Banking, Housing, and Urban Affairs

  • Finding the Right Capital Regulations for Insurers - [pdf-105p, VIDEO-Senate] - Senate - Banking, Housing, and Urban Affairs Committee - Subcommitte on Financial Institutions and Consumer Protection
  • 2015 0430 - GOV - Examining Insurance Capital Rules and FSOC Process - [pdf-70p, VIDEO-Senate] - Senate - Subcommittee on Securities, Insurance, and Investment - Committee on Banking, Housing, and Urban Affairs
  • 2017 1024 - GOV - The Federal Government’s Role in the Insurance Industry - [pdf-140p, VIDEO-youtube]
    • Schwarcz/Ross/Duffy/Capuano/FIO
    • Schwarcz - Written Testimony - 27p
    • 1:17 - Capuano - Madoff did things that were Illegal, AIG did not
    • House - Committee on Financial Services -  Subcommittee on Housing and Insurance
  • 2018 0307 - GOV - Legislative Review of H.R. 5059, the State Insurance Regulation Preservation Act - 1:48:00
    • [PDF-86p - VIDEO-Youtube]
    • State Insurance Regulation Preservation Act 
    • Schwarcz Testimony - 16p
    • Ross (FL) v Schwarcz
    • House - Committee on Financial Services -Subcommittee on Housing and Insurance 
  • Moreover, if you look at FSOC's report designating Prudential as a SIFI, you will see that FSOC, after looking at the portfolio of Prudential quite carefully, says that they are, in fact, potentially susceptible to a run.
  • Now, I admit and I want to emphasize this risk is different and less substantial than the risk of a run in banking.
  • But at the same time, it is real.
  • There, in fact, have been runs on insurance companies. Executive Life in 1991 was subject to a run wherein policy holders removed from the company $3 billion within the course of a single year.
  • Why is this significant?
  • It can result in systemic risk not because the insurer fails necessarily, but because an insurer facing massive liquidity problems can immediately try to dump its portfolio, thereby interfering with broader capital markets.
  • There is emerging research showing that insurers were a big part of the problem in their purchase of mortgage-backed securities leading up to the crisis and in triggering a fire sale of mortgage-backed securities when they offloaded those assets.
  • So the point I want to make is this: Insurance is less
    systemically risky than banking, but it can be systemically risky.
  • Why then does that lead to the conclusion that we need to have distinct capital requirements at the Federal level?  (p10)

--  Daniel Schwarcz

Finding the Right Capital Regulations for Insurers - 105p

  • 2011 0914 - GOV (Senate) - Emerging Issues in Insurance Regulation - Senator Reed (D-RI) - [PDF-51p,   VIDEO-Senate]
    • Daniel Schwarcz
      • (p10) - In sum, State insurance regulation has generally failed at a core task of consumer protection regulation—making complex markets comprehensible to consumers and broadly transparent to those who may act on their behalf.
      • Why can’t I compare cash value products and have some sense of what is going on in the marketplace?
      • (p26) - Because the notion—I mean, it really is a problem, and it is a problem that is under addressed because everyone is so focused on solvency that they forget all these other important regulatory issues. 

VIDEO

  • 48:00 - Schwarz- failed
  • 57: - Schwarz - Regulators - Motivation, Lack of Transparency, see the policy before buying, Emphasis on Solvency
  • Senator Reed:  esoteric, who is a good company, 
  • 59:00 - Schwarcz -  Disclosure financial ratings, focus on Products
  • 1:00 - Vaughan - Market Regulation is behind Solvency (Solidity) Regulation, "it's a tough thing,"  Ratings, Consumer Education, Educating Consumers on the kind of questions they can ask.
  • 1:04 - Reed - AIG is why we are here.  Securities Lending. 
  • 1:05 - Weiss - AIG could have been avoid by different regulators working with each other, more eyes at NAIC - Strength, Regulatory Arbitrage, Captives newspaper article, Leverage <Contagion>, Life Insurance Company Investments are Illiquid, Statutory Accounting very conservative, 
  • 1:11 - Reed:
    • Office of Financial Research (OFR) , Work with NAIC
    • to Scharcz - buy Insurance based on 2 things: 1) Brand 2) Little league Coach. Conflicts of Interest - Mortgage brokerage business, Steering, "Role of Agents - Do they know enough?"
  • 1:12 - Schwarcz - No public info.  Independent Agents - Don't have concrete information.  Don't have expertise.  Commissions.  Dynamics aren't clear.  Elliot Spitzer/ AON - lots of regulations enacted for Commercial Market, but not for consumers. 
  • 1:15:50 - Vaughan - Consumers are the frontline, InsureU, Complaint Database, Consumer Guides - home, auto, Transparency and Readability Working Group - Comparison Shopping, 
  • 1:17 - Reed:  Agents are good people, except for when it comes to commissions.
  • 1:18:30 - Vaughan - Producers Licensing Task Force
  • 1:18:50 - Reed:  Federal Charter, issues are coming at us fast. 
  • 1:19 -  Vaughan - Congress should keep pressure on us.  It makes us up our game.
  • 1:20: - Vaughan - Disclosure more difficult in insurance
  • 1:21 - Reed: liquidity, help from the Feds, Stress Testing in Europe.  Help us predict what companies are going to need help.  
  • 1:22 - Vaughan - We don't publicly talk a lot about what we do at the NAIC.  Cash Flows, Life Insurance, Interest Rate Scenarios, Leverage Issues, more complicated ways for companies to take risk, Holding Company Model Regulation, ERM, Group Capital Assessment, Stress-testing is not a new tool - we just haven't been as vocal about it.
  • 1:36 - Vaughn - IAIS - international
  • 1:37 - Weiss - Schwarcz and Vaughan are talking about 2 things.
  • 1:38 - Schwarcz - Disclosure.  Provide consumers with information  that they can compare.  CFPB, Mortgage Form.  "Empowering Consumers is Hard."  NAIC - Motivation - "after the pressure."
    • Why Can't I compare Cash Value products......

2015 0430 - GOV (Senate) - Examining Insurance Capital Rules and FSOC Process - 70p

  • Mr. SCHWARCZ. Absolutely, I think stress testing is very important. I think the difference is the Fed needs to stress-test specific to systemic circumstances, and so the types of stresses that it is going to consider are stresses to the broader financial system that occur simultaneously with stresses to the firm.

    • The other point I would like to make is it is absolutely true that most of the time life insurers’ liabilities are long term. But the very reason or one of the core reasons why firms get designated as SIFIseven though they engage predominantly in insurance is because liabilities that seem long term and usually are long term can become short term in systemic scenarios. For instance, policyholders can cash out or surrender; guaranteed investment contracts can be canceled. So stress testing for SIFIs needs to specifically look at the possibility that otherwise long-term liabilities will become short term and ask whether or not the firm can handle that given the sort of dominant assumption that in most times the liabilities are very long term and predictable.

  • Mr. FALZON. Senator, I need to object to the observation that was just made. I think that both the review process for Prudential as a designation as a SIFI and that that was done for Metropolitan Life, we demonstrated with a body of evidence that, in fact, the acceleration of liabilities on an insurance company’s balance sheet does not give rise to systemic risk and, in fact, has been fairly modest. The evidence does not support the conjecture of that argument.

    the books. They are not available to me. But FSOC has indicated that is one of the reasons why both Prudential and MetLife were designated, and for that reason, stress tests need to take that into account

  • Mr. SCHWARCZ. Can I just say one thing? Much of the information is not in the public domain, so I cannot say one way or another whether that is right. What I can say is that the FSOC decided in its public basis that indeed there was systemic risk associated with the possibility of a run on—and that was one of the bases of its designation. So I cannot personally say whether that is right. I have not gone through