1994 04 – CBO – The Economic Impact of a Solvency Crisis in the Insurance Industry – 80p

1994 04 - CBO - The Economic Impact of a Solvency Crisis in the Insurance Industry, Congressional Budget Office --- [BonkNote] --- 80p

(pix) - During the past decade, the savings and loan crisis and the problems of the banking industry have focused the public's attention on the financial problems in the insurance industry and their implications for the overall economy.
- The life insurance industry suffered from some of the same competitive forces that hurt the savings and loan and banking industries.
(px) - Runs on Life Insurers
- Life insurers, whose liabilities are generally more liquid than their assets, are particularly vulnerable to runs by policyholders.
- Consequently, some policyholders would try to protect themselves by canceling their investment contracts and policies, withdrawing their cash values, and asking for policy loans.
  - If left unchecked, a run can drain liquid assets and turn into a solvency crisis as insurers are forced to sell other assets at a discount.
- Thus far, state insurance regulators have been sensitive to signs of a run and have stepped in to protect besieged companies by preventing policyholders from redeeming their policies and taking out loans until the threat of a continuing run had subsided.
  - Nevertheless, insurance regulators may be overwhelmed if runs occur at a greater frequency.