2021 0225 – Yale – YPFS Lessons Learned Oral History Project: An Interview with Eric Dinallo – 19p

2021 0225 - Yale - YPFS Lessons Learned Oral History Project: An Interview with Eric Dinallo - 19p

2021 0225 - Yale - YPFS Lessons Learned Oral History Project: An Interview with Eric Dinallo, Former New York State Superintendent of Insurance (2007-2009) --- [BonkNote] --- 19p

(p7) - Dinallo: I decided that I had enough information, and enough belief in the statutory accounting, which we can talk about. Which is really part of the story. That I was going to go out there and make statements about my confidence in the insurance companies of AIG.
- Because I did believe that on a statutory accounting basis, they had more than enough assets to match their long-term liabilities on a statutory accounting basis. Not mark to market. Which Geithner to this day …
YPFS: Can you talk a little bit more about that?
- Dinallo: When Geithner heard this, I made this joke. I don't know if I've been quoted.
  - I think he thought I was explaining the Mayan calendar to him. It was so alien and so weird.
  - But basically, life insurance companies have long-term liabilities, and they match it with long-term assets that are going to perform by maturing 20 years from now.
  - That's why so much of the reserves are put towards basically debt, Treasuries, etc., that are highly rated.
    - So that they will almost certainly, hopefully, certainly perform.
    - Which means mature. You're going to get the coupon along the way, albeit a small yield.
    - The volatility before maturation over the 20 years does not count.
  - This is the biggest debate in insurance right now.
    - Between Europe, the feds, and the United States.
      - That the inter-period where there's volatility, and this is what I mean by, back with Shelby.
      - They were like, "Oh my god, they're insolvent."
      - I'm like, "They're not insolvent. They may be, on some reporting basis, marginally insolvent."

(p8) - Exactly. The dead opposite. You have such a mismatch on this, with Europe and the feds, and the way the feds think about it, and the way they think about banks. Because banks, you can have a run. You can't have a run on an insurance company quite the same way as a run on a bank. It's very hard. It doesn't work. In fact, you could put the wall down if you want, and slow walk rescission. There's a lot of things you can do that you can't do with a bank. It's hard. People don't really understand it. But the statutory accounting to me
has always been the right way, and it's worked for 150 years so far. If you think about it, it actually worked very well during the crisis. That the outcome was correct. The insurance companies, at both Hartford and AIG, were in fact solvent. The holding companies were disastrous. But the insurance companies, which had the moat around them as I've said, that each one of them, if well regulated, was what was solvent

2021 - YPFS Lessons Learned Oral History Project: An Interview with Eric Dinallo - 19p
- (p17-18) - Eric Dinallo: Geithner asked about, because they're seriously considering, giving serious thought about a debtor in possession-DIP-thing for AIG.
  - He's like, "What do you think?"
  - I'm like, "It's a horrible idea."
  - He said, "Why?
- I said, "Because while it looks possible on paper, and I get the point.,,
  - If you file for bankruptcy at the holding company level, all these subsidiaries, they're going to start ...
  - Some states may even require by law … that the states will seize the operating companies, because the holding company filed for bankruptcy.
  - They're going to pull up the drawbridge, and go into castle mode.
  - Then you're going to have a run on insurance companies."
- While I'm saying this, I swear to God, CNN is on. We took a break, and CNN was on.
  - They were lining up in Singapore for, I don't know why, but at AIG's insurance company in Singapore, they were lining up.
  - They were acting like a run-on-the-bank moment.
  - Probably to check on their insurance policy.