GICs - Guaranteed Investment Contracts

  • 412(i)
  • 1991 0903 - NYT - Worry Over Retirement Funds, By Eric N. Berg - [link]
    • GIC's, Executive Life, Mutual Benefit
  • Also, you had a lot of different interests in Executive Life.
    • You had joint service and Goldman Sachs had bought a lot of the muni-GICs at 10¢ on a dollar.
    • It was looking for the big pop.
      • Whether it was 68¢ or 50¢, it wanted cash back quickly; it didn't matter. It is going to make a ton of money.

--   Keven Maloney, Vice President and Senior Analyst of Moody's Investors Service

1999 - SOA - Insurance Company Failures of the Early 1990s-Have We Learned Anything?, Society of Actuaries - 25p

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--  Jeffrey Cohen, Vice President, Goldman, Sachs & Company

  • Victor Modugno: We could have called this session FANIPs for Funding Agreement Note Issuance Programs or capital market GICs.
    • This refers to issuing GICs or funding agreements (the term used depends upon the insurer's domiciliary state) to a special purpose corporation that issues notes to investors.
    • Starting from the first program in 1994, issuance of these note programs has grown to more than $15 billion per year by 1999.
    • These programs have supplanted 401(k) GICs as the main source of institutional business for many insurers as synthetic GICs replaced traditional general account GICs.
    • We have assembled an outstanding panel representing investment banking, insurer, and rating agency views.
    • I'm a consulting actuary who specializes in institutional products.

2000 - SOA - GIC in a Box, Society of Actuaries - 25p

  • (p5) - Donald Payne (D-NJ) - Life insurance companies have been often guaranteed investment contracts-GICs-as a pension investment, particularly for defined contribution pension plans.
    • Depository institutions enter the same market, however, with the added benefit of Federal Deposit Insurance for the Bank Investment Contracts-BICs-because many factors, like the window provision and the benefit responsiveness provision and make the GICs and the BICs risky to the issuing institution.

1991 0502 - GOV (House) - Oversight Hearing on the Effect of Proposals to Reform Federal Deposit Insurance on Pension Funds, Pat Williams (D-MT) - [PDF-225p-GooglePlay

  • 1993 0301 - FRB-M - Guaranteeing Disaster: Moral hazard in the insurance industry - [link]
    • Although insurance companies promise holders of SPDAs and GICs fixed returns on their investments, the true worth of these promises is not easy to ascertain.
  • Two new model regulations—one covering synthetic GICs and the other guaranteed separate accounts—are working their way through the regulatory process.

1998 - SOA - Synthetic GIC and Guaranteed Separate Account Model Regulations, by Victor Modugno (p1), Society of Actuaries - 32p

GUARANTY FUND (EX4) TASK FORCE

  • Brian Quigley (Travelers) .....noted that the task force should be aware that the trend is toward no coverage for GICs.

1987-2, NAIC Proceedings

  • 1987-2, NAIC Proceedings
  • 1989 - SOA - Financial Condition of the Industry -- A View From Rating Organizations, Society of Actuaries - 14p
  • 1991 0717 and 0724 - GOV (House) - Life Insurance Solvency Issues - [PDF-217p-GooglePlay,
  • 1992 - SOA - GICS and Other Insurance Company Products - Are They Still Alive?, Society of Actuaries - 26p
  • 1992 Summer - FRB - SPDAs and GICs: Like Money in the Bank?, Federal Reserve - [LINKtoPDF-18p]
  • 1995 - SOA - Asset/Liability Issues of Synthetic GICs - 22p
  • 1996-3v2, NAIC Proceedings - Synthetic GIC Working Group of the Life Insurance (A) Committee
  • 1998 - SOA - Synthetic GIC and Guaranteed Separate Account Model Regulations, by Victor Modugno (p1), Society of Actuaries - 32p
  • 2000 - SOA - GIC in a Box, Society of Actuaries - 25p
  • The final item on my list is the life liquidity risk working group.
    • This was an outgrowth of concern about GIC contracts with bailout provisions linked to credit ratings of the insurance company.

--  Douglas Doll

2000 - SOA - Valuation Actuary Symposium - Session 1GS - General Session - 28p

  • The Life Liquidity Risk Working Group arose from an interest in liquidity matters in 1999 by the Life and Health Actuarial Task Force relative to guaranteed investment contracts with bail-out provisions with increased interest subsequent to the General American insolvency.

2001 - SOA - Life Liquidity Risk, by Jon E. Niehus, Society of Actuaries - 2p

  • Then there's a counterpart to GICs, or bank investment contracts (BICs), which two years ago were an important force; they held a lot of attractions to the buyers and generated a lot of discussion in the insurance industry.
  • Right now, the BIC market is quiet.

-- Joseph J. Buff

1992 - SOA - GICS and Other Insurance Company Products - Are They Still Alive?, Society of Actuaries - 26p

  • Likewise, life insurance companies because of the huge growth of the guaranteed investment contracts have liabilities with an average duration of about 3.5 years.
    • Yet, they're even more heavily invested in long-term mortgages and real estate equities.

-- Senator John Kerry (D-MA) (approx. 01:32:30)

1991 - GOV (Senate) - Bank Industry Restructuring - [PDF-,  VIDEO-CSPAN]

  • Pension Products
    • The life insurance industry had always been the major player in the defined benefit pension market.
      • The industry had played a much less significant role in the accumulation of defined contribution plans.
    • However, in the early 1970's the first Guaranteed Interest Contract (GIG) was developed to provide older workers in defined contribution plans with a means of reducing fund volatility as they approached retirement.
    • The GIC was designed to provide a bond portfolio type return with the ability to transfer-funds without a market value adjustment.
    • Although they were initially designed for workers nearing retirement they ultimately proved quite popular as the conservative option (i.e., fixed interest rate) for all plan participants.

1991 0717 and 0724 - GOV (House) - Life Insurance Solvency Issues - [PDF-217p-GooglePlay,

  • Testimony of Terence Lennon (NEW YORK Department of Insurance) - 17p
  • House - Committee on Energy and Commerce - Consumer Protection and Competitiveness
  • Impact of Junk Bonds Real Estate and Mortgage on the Life Insurance Industry
  • Prior to the Executive Life Insurance Company (ELIC) default there was no such thing as a stable value fund and all GIC funds presupposed that there never would be a default.
  • The problems that would be created by default were more or less unthinkable.
  • Everyone took the view that if you had a default, you would defeat the fundamental premise of a GIC fund which was that principal would be guaranteed, and only the rate of return would vary over time.
    • No one ever thought GIC defaults could occur.
      • It's hard to imagine that people could think that way today.
      • No one thought that the leading insurance companies that were carrying AAA ratings could default in a short period of time.
      • Most GICs were for five years or less, so who could imagine that a AAA investment could be not only downgraded but go into insolvency within the five years of the time frame. 

 --  Murray L. Becker

1999 - SOA - Insurance Company Failures of the Early 1990s-Have We Learned Anything?, Society of Actuaries - 25p