Comments: 

• Q1 Do you agree with the IAIS’ plan for the development of liquidity metrics for monitoring? If not, please explain what changes you recommend and why.
  • 2. CIA-ICA (Canadian Institute of Actuaries):  A key consideration that we believe should receive more emphasis is that there are different circumstances that could trigger liquidity problems for insurers.
    • A liquidity problem that is a result of an insurer’s idiosyncratic circumstances can create financial effects that might be mitigated by a range of available remedies.
    • However, a more systemic liquidity crisis might result in insurers having fewer potential remedies.
    • Understanding the type of liquidity crisis is key to assessing what liquidity needs might arise and what liquidity sources might be available.
  • Resolution of comments:  Different circumstances that could trigger liquidity problems for insurers will be analysed in the Phase 2.
• Q10 Do you agree with the treatment of liquidity risk from surrenders and withdrawals from insurance products in the ILR? If not, please explain how this could be improved.
  • 235. ACLI - American Council of Life Insurers:
    • The Consultation seems to acknowledge that the protection purpose for which a policy is purchased plays an important role in the risk of surrender, yet the methodology contains no classification by product type that would incorporate this important factor. This would need to be remedied if the ILR is to provide a meaningful assessment of an insurer’s liquidity risk.
    • Likewise, we recommend that the IAIS establish separate, factors for cash value life insurance products and annuity contracts.
    • ...“run on the bank" scenario. In such an extreme scenario, insurers could exercise their contractual rights to delay payment, as by a matter of practicality companies are not set up to process such high volumes in a similar time frame as they would in the ordinary course.
  • 239. Northwestern: In our experience looking back over decades, the lapse characteristics of life insurance and annuities behave quite differently, with life insurance generally being less prone to surrender than annuities.
    • We expect that similar distinctions would be observed among other participants in the US life insurance and annuity marketplace.
    • While we recognize that there are meaningful differences within life insurance products and within annuity products, we also observe as a general matter that policies that provide coverage against death are likely to be viewed by the policyholder as serving primarily a protection purpose rather than primarily a savings purposes.
      • Accordingly, recognizing the lower liquidity risk of life insurance policies would partially fulfill the effort, noted in the paper, at distinguishing policies purchased primarily for protection.

• Q23 General comments on the Public Consultation Document on the Development of Liquidity Metrics: Phase 1 - Exposure Approach
  • 465. The Geneva Association: Take the mass lapse scenario as an example: this could cause a severe stress scenario for a life insurer but is much less an issue for P&C insurers or reinsurers.
  • 476. IIF - (Institute of International Finance): The IAIS should also provide for a more granular categorization of insurance products in order to capture the significant variation in surrender and lapse across product type.