1991 – GOV (House) – Insurance Company Solvency – Cardiss Collins (D-IL)

1991 - GOV (House) - Insurance Company Solvency

1991 0227, 0507, 0509 and 0523 - GOV (House) - Insurance Company Solvency, (CSPAN) Insurance Company Insolvencies, Cardiss Collins (D-IL) --- [BonkNote]
- [PDF-369p-GooglePlay, VIDEO-0509-CSPAN]
- [VIDEO-? - 0227, 0507 and 0523]
- House - Committee on Commerce, Science, and Transportation - Subcommittee on Commerce, Consumer Protection, and Competitiveness

1991 0509 - GOV (Senate) - Insurance Company Solvency - Tom Sutton, ACLI, Pacific Life --- [BonkNote]
1991 0509 - GOV (Senate) - Insurance Company Solvency - Project --- [BonkNote]

(p104-105) - George E. Bull, III, president, GB Capital Management
- The junk-bond market, one time, was described to me by one person.
  - When I tried to explain what these were, they said it's sort of like a second or a third or a fourth mortgage loan, then, on a corporation, that the banks get paid first and then the senior people.
    - Then, at the end, you are sort of at the end of this.
  - I said in a sense, you are correct, and so, therefore, the risks on this are substantially higher. Isn't that true?
  - I said that is true, that is obvious, that, in liquidation, strict priority liquidation, you are going to get a lot less.
- Well, in the mortgage business, it is the same thing.
  - We have first, seconds, thirds, and fourths.
  - We have straight mortgages. We have IO's, PO's.
  - ⇒ We have pieces of CMO's that the Wall Street calls the toxic waste piece.
  - All these are high-risk assets, but under current reserving requirements in the insurance industry, there is no differentiation.

(p171) - Michael OXLEY (R-OH). - In my opening remarks, I referred to a New York Times article on June 24. And my question is based on that.
- That article suggests that several shortcomings of the life insurance guaranty fund system, which first of all questioned the ability of the insurance guaranty fund system to handle the potential Executive Life and First Capital insolvencies.
- Second, argued it would take years for the funds to raise enough money to pay consumers who want to cash in their policies immediately.
- Third, they questioned the non-uniformity of State guaranty fund coverage.
- Four, suggests billions of dollars of pension money remains outside the guaranty system, essentially uninsured.
- And, five, stated it would take the Hawaii Life Insurance Guaranty Fund up to 9 years to gather enough money to pay off Executive Life policyholders in this jurisdiction.
- ⇒ I wonder if each of you could address those five criticisms and how you might propose a solution if, indeed, those are problems.
Eden SARFATY, NOLHGA - I am aware of the article you refer to.
- Let me say that it was really one of the worst pieces of journalism I have seen in a long time, and I was rather shocked to see it from the New York Times.
- They got a lot of things wrong. They got — but I think, the Hawaii illustration is indicative.
- In effect, they assumed the face amount of all the contracts had to be paid on a gross basis all at once.
- Well, that is not how insurance works.
  - It never works that way, and that is certainly not how the guaranty system works and it never has.
- In effect, they assumed everybody that had an insurance policy up and died instantly.
⇒ 1991 0624 - NYT - Life Insurer Failures Point Up Flaws in Safety Nets of States, by Eric N. Berg - [link]

(p258) - Tom Sutton, ACLI / Pacific Life - As you have heard several times this afternoon, when a company becomes insolvent the rest of us pay the cost, not only in loss of consumer confidence, but in a more direct economic way.
(p258) - Statement of Tom Sutton, Chairman and Chief Executive Officer of Pacific Mutual Life Insurance Co., On Behalf of the Council of Life Insurance (ACLI)
- We have already seen the effects of underpriced products in the market place, where Executive Life was taking away the business of more prudently managed companies by illustrating or guaranteeing unrealistic interest rates.
- One current example is that Pacific Mutual was one of the losing bidders on the Pacific Lumber annuity case that you just heard about.
- Regarding Executive Life's strategy, Pacific Mutual and others in the industry have had a high level of concern which was dismissed by some regulators at that time as competitive sour grapes.
- Second, Executive Life, together with others in the Milken daisy chain, had substantial lobbying power in Sacramento.
  - For example, last year I testified in favor of a legislative limit on below investment grade securities before the California assembly insurance and finance committee.
  - Intense lobbying by those opposed to such a limit led to only 4 affirmative votes out of a committee of more than 20.
- Could we have done more at the time?
  - Perhaps, but the combination of financial euphoria and political clout would have made success extremely difficult.

(p275) - John WASHBURN, former Illinois Commissioner of Insurance:
- There is one factor that is causing some real new concerns in liquidations and being able to pay policyholders, and that is the Federal Priorities Statute, that was passed in, I think, 1795.
- The Treasury Department has started to use the Federal Priorities Statute on liquidations and insolvencies, maintaining that it is not the business of insurance, and thus falls under the Federal Priorities Statute, and their usual charge, then is that anyone who makes any payments before Uncle Sam is fully paid off, whoever makes that payment is in jeopardy.
- That would include the guaranty fund.
- They have in some cases attached commissioners' homes.
- The problem is that they do not feel a necessity to tell you exactly what all they are assessing under the Federal Priorities Statute; they just restrict your ability to pay.
- Now, there have been a number of discussions with the Treasury Department over this.
- We have not really proceeded - I say we, I am no longer in the business — but when I last left there was not a completion on this.