Mark to Market Accounting

  • 2012 0105 - OFR - A Survey of Systemic Risk Analytics - 165p
    • (p19) - Sapra (2008) considers issues arising from historical and mark-to-market accounting for both insurance companies and banks.
      • 2008 - AP - Do accounting measurement regimes matter? A discussion of mark-to-market accounting and liquidity pricing,” by Haresh Sapra, Journal of Accounting and Economics, 45(2-3), 379–387 - 17p
  • Mr. BACHUS. Thank you. Mr. Liddy, mark-to-market, I think, is good in concept, but insurance and banking CEOs are telling me that it is not working well in a distressed market. I would like your comments on modifications others have proposed, and general modifications, and how it might help AIG to increase the likelihood of the taxpayers being fully reimbursed.
  • Mr. LIDDY. Yes, sir. I think mark-to-market is a good concept, run amok. On balance, knowing what something is worth every day is a good thing, but it presumes that there’s a market. It presumes that there’s a willing buyer and a willing seller.
  • When liquidity completely dries up, there’s not a willing buyer, so you have to keep marking the value of the assets down to an unwilling buyer level.
  • In insurance companies, we have a long liability. We will insure your life.
    • And we will match it with a long dated asset.
    • Those long dated assets, like commercial mortgage-backed securities and residential mortgage-backed securities, because they’re long-dated, they are not liquid right now, and they have been buffeted in value, unlike anything most of us have ever seen.
    • So as a result of that, AIG and many other insurance companies have had to write the value of those assets down, and it has caused great stress on the liquidity.  (p63)

2009 0318 - GOV (House) - American International Group's Impact on the Global Economy: Before, During, and After Federal Intervention

For another, life insurance companies suffered large losses on a mark-to-market basis during the crisis from the decline in equity prices, as well as falling prices of mortgage and other fixed income securities that were being sold by others facing immediate cash needs.

  • As a result, in early 2009, some had negative tangible equity value on a mark-to-market basis.
  • This was reflected in the price of their shares, which, on average, dropped 75% over the course of the crises.
  • A few applied for TARP assistance for additional capital.
  • But they faced little or no financial distress because their liabilities, principally obligations to make payment on policies, were long term.
  • They could and did wait for markets to return to more normal levels.  (p30)

2013 10 - AP - Five Years Later: Lessons from the Financial Crisis - 67p

  • The badly mistaken belief by some that mark-to-market accounting has no adverse implications for life insurance companies and more recently the cramdown provisions in the proposed bankruptcy legislation that would result, certainly could result in the unwarranted downgrades to life insurers’ AAA-rated residential mortgage-backed securities investments.
  • Those actions were all well intended, but in each instance, they occurred with little or no understanding of their effects on life insurance companies.

-- Frank Keating, President and CEO, The American Council of Life Insurers

2009 0317 - GOV (Senate) - Perspectives on Modernizing Insurance Regulation - [PDF-160p, VIDEO-Senate-Error]

  • 2009 0312 - GOV - MARK-TO-MARKET ACCOUNTING: PRACTICES AND IMPLICATIONS 
    • [PDF-420p. VIDEO-CSPAN]
    • ACLI Letter (p308-309)
    • ABA Letter (p310-
    • House - COMMITTEE ON FINANCIAL SERVICES SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED ENTERPRISES