Non-Investment Bonds Working Group – NAIC

Non-Investment Bonds Working Group - NAIC

(p191) - Senator Richard BRYAN (D-NV). We will keep the hearing record open to give you the opportunity to do so. Mr. McCartney, as I understand, the NAIC established a junk bond working group some time last year. Am I correct on that?
Mr. MCCARTNEY. Yes, sir. Senator BRYAN. And you had several meetings, or a couple of meetings? Tell me a little bit about how that working group operated.
Mr. MCCARTNEY. Yes, Mr. Chairman, it was established in late January, early February, of 1990. I cannot remember specifically how many States were on it, but seven, eight, or nine, something
like that. It was chaired by Illinois. Senator BRYAN. As you know, there are certainly critics of State regulation and critics of State action as well as the NAIC. My understanding, from information which has been provided to this committee, that the noninvestment grade bond working group, as it has been called, concluded in late December of last year, 1990, that the companies-referring to these companies that had large junk bondholdings, and specifically Executive Life companies-are capable of meeting their current and projected cash-flow requirements, that a number of hypothetical future economic environments requested by the working group was considered, and the studies illustrated the companies' ability to meet their obligations under adverse circumstances. In summary, the working group's conclusion that the companies are capable of meeting all current and projected obligations was founded on the review of available data. Now, that is less than 4 months before the insurance commissioner of California, as you know, petitioned for the conservatorship, followed by 5 days. Mr. McCartney, I have to say that does not inspire great confidence in the evaluation of the NAIC in terms of the condition of those companies. Let me give you an opportunity to respond. Mr. MCCARTNEY. To respond, I need to give you a longer answer than you might care to hear, but I need to give you some history of what the NAIC was doing in 1990.