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2008 Financial Crisis – Insurance Regulators

  • Joel Ario – Pennsylvania Insurance Commissioner
  • Eric Dinallo – New York Insurance Commissioner
    • Hampton Finer
    • Michael Moriarty
  • Michael McRaith – Illinois Insurance Commissioner / Later FIO Director
  • Sandy Praeger – Kansas Insurance Commissioner
    • 2008 – NAIC President
  • Roger Sevigny – New Hampshire Insurance Commissioner – 2003-2018
    • 2009 – NAIC President
  • Doug Slape – Texas Insurance Department
  • Terri Vaughan – NAIC CEO, Iowa
  • NAIC – Government
  • 2008 1006 – NAIC to GOV Letter – Praeger, Waxman, Davis – [link to NAIC Page – 4p]
    • (p1-2)The problems stem from the operations of AIG’s holding company, its financial products division, and its securities lending division, regulated at the Federal level by the Office of Thrift Supervision (OTS).
  • 2009 0227 – NAIC to FRBNY – Letter from the National Association of Insurance Commissioners to Thomas C. Baxter – 2p 
  • AIG’s securities-lender clients flooded the program for their collateral, creating a “mini-run” on the bank, says Doug Slape, chief financial analyst of the Texas Department of Insurance.
    • The company began drawing down on the Fed loan commitment to cover the collateral requests, it told Mr. Slape in recent conversations, he said.
  • By Oct. 3, Moody’s Investors Service said AIG’s default-insurance and securities-lending program had experienced “substantial losses and write-downs” due to mortgage securities.
  • The Texas regulator grew concerned about the exposure in 2007.
    • At the time, AIG told Texas it recognized that it needed to retain more cash, Mr. Slape said.

2008 1008 – WSJ – AIG Increases Borrowings While Racing to Sell Assets, By Liam Pleven, Carrick Mollenkamp and Craig Karmin – [link]

Universal Life Descriptions - NAIC

  • A proposal to draft a universal life model bill was set forth by the advisory committee to the (A5) Universal Life Insurance Task Force.
  • The advisory committee chairman, James Jackson of Transamerica Occidental Life, indicated that the drafting of such a model bill would be contingent on the ability of the advisory committee to adopt a "workable, acceptable" definition of universal life.  (p7)

1983 02 - SOA - (A5) Task Force Considers Universal Life Model Bill, NAIC Report by Bill Hager, The Actuarial Update, Feb1983-AU - Society of Actuaries - 8p

  • InsureU
  • LIBG - Different Versions
  • CIPR - Permanent made up of Term
  • LIIIWG - Permanent / Term
  • Old
    • Special Plans
    • Completely Flexible
    • Funded
  • NAIC - Accounting Practices and Procedures Manual, SSAP No. 50- Classifications of Insurance or Managed Care Contracts:
    • Universal life and variable life contracts include those contracts which have terms that are not fixed and guaranteed relative to premium amounts, expense assessments, or benefits accruing to the policyholder.
  • The term "universal life insurance policy" means a life insurance policy where separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds or other supplementary accounts) and mortality and expense charges are made to the policy. (p27)

2021 - NAIC Valuation Manual - 299p

Q: Does the NAIC get anything done without pressure from Congress?

  • The whole process started in the NAIC, as it had to.
    • If radical changes in the way we illustrate policies were going to be made, they had to start at the NAIC.
  • The NAIC was only too well aware of the fact that sales illustrations were the subject of innumerable abuses and they wanted to correct those abuses.
  • Furthermore, the NAIC was being pushed by Senator Howard Metzenbaum who wanted to accuse the regulatory structure of not doing its job and then to bring regulation up to the federal level." 

--  Frank S. Irish, ASB - Actuarial Standards Board

1996 - SOA - Professional Standards Affecting Life Actuaries, Society of Actuaries - 18p

  • 2009 0305 - GOV (House) - Perspectives on Systemic Risk, Paul Kanjorski (D-PA)  ---  [BonkNote]  ---  (Part 1 of 2) - [PDF-254p,
    • Terri Vaughan (NAIC-CEO)
      • I will tell you, the insurance regulators have had failures also.
      • We have been the recipient of several GAO studies, thank you very much, that pointed to problems in our system, and that we then went and fixed.  (p28), (Part 1 of 2)
  • 1970s - Senator Hart - Life Insurance Buyer's Guide / Disclosure
  • 1990s - Senator Metzenbaum - Life Insurance Illustrations Model Regulation
  • Daniel Schwarcz - GOV- Ross?
  • (p7) - Daniel Schwarcz (Law Professor):   We hear a lot about how strong the State-based insurance regulatory system is, but little context as to why.
    • Historically, virtually every single major advance in State insurance regulation was a result of direct Federal pressure.
  • (p35) - Mr. Heck (D-WA) -  I don't have a lot of time left, but I do want to observe with all due respect, Professor Schwarcz that if I were to restate your testimony as I  understand it, it may sound a little bit, well, frankly, like parody, but I think you were literally saying that every good thing that has happened in State regulation of insurance has happened because of the Federal Government. Really?
  • Mr. SCHWARCZ. Well, if you actually read the testimony and look at every single example I give, I would challenge you to point out any single example I have that was not directly triggered by Federal scrutiny. So-
  • Mr. HECK. So-
  • Mr. SCHWARCZ -so you can characterize it, but if you actually want to look- 

2017 1024 - GOV (House) - The Federal Government's Role in the Insurance Industry - PDF-140p

    • There is nothing like a strong push to get the NAIC moving.
    • The talent is there, the commissioners and the actuarial staffs of various departments can accomplish it.
  • If Admiral Rickover had waited to solve-all the technical problems we wouldn't have an atomic submarine yet.
    • So, what we need is a push from outside, because without that push I'm afraid the NAIC will study it for decades.  (p1503)

--  John A. Durkin, New Hampshire Insurance Commissioner

1973 - GOV - The Life Insurance Industry: Part 2 - Senator Hart

  • Even some insurance commissioners have piled on.
    • Just last week, Mr. Csiszar spoke to industry executives saying, ''You have to force us at the NAIC, hold a club over our heads, knock us over the head, use every tool in your bag.''

--  J. Robert Hunter, Director of Insurance, Consumer Federation of America  (p23)

2003 1022 - GOV - Federal Involvement in the Regulation of the Insurance Industry, aka Insurance Industry Regulation -  [PDF-147, VIDEO-CSPAN] 

  • Senator John SUNUNU (R-NH). So you think things are really going to change. It's been a slow, painful--
  • Ernst CSISZAR (NAIC, South Carolina Insurance Commissioner): I think--
  • Senator SUNUNU.-dragged-out process--
  • Mr. CSISZAR.-I think we can make a change--
  • Senator SUNUNU.-but things are about to change.
  • Mr. CSISZAR.-and I-you know, as I said, you know, and I've been criticized for it, but I welcome this kind of opportunity, in a sense, because it does put pressure on us to change. And I don't think that's necessarily bad.  (p94)

2003 1022 - GOV (Senate) - Federal Involvement in the Regulation of the Insurance Industry, (CSPAN) Insurance Industry Regulation - [PDF-147, VIDEO-CSPAN] 

  • Terri VAUGHAN:  All right. I have to say, I have always said I appreciate that Congress puts some pressure on us because it makes us up our game.
  • Chairman Jack REED (D-RI):  Well, that is-I think the purpose of this hearing is not so much pressure, but this is an important set of issues and we want to devote ourselves to listening but also providing at least support for your efforts and suggestions based upon the panel of places we have to do more.

2011 0914 - GOV (Senate-Banking/SII) - Emerging Issues in Insurance Regulation, Jack Reed (D-RI)  ---  [BonkNote]  ---  [PDF-51p,  VIDEO-Senate] 

  • Daniel Schwarcz: And so I think one of the-and again, Dr. Vaughan mentioned the fact that, well, it took us a while to get to this accreditation program.
  • How did they get there?
    • They got there because the solvency regime was completely inadequate, resulting in a lot of insolvencies in the 1990s, and the Federal Government started noticing this, writing reports.
    • They wrote a very well known report in insurance circles, ''Failed Promises" - [PDF-81p]
      • It led to massive change at the NAIC and I do think it has been very effective.

2011 0914 - GOV (Senate-Banking/SII) - Emerging Issues in Insurance Regulation, Jack Reed (D-RI)  ---  [BonkNote]  ---  [PDF-51p,  VIDEO-Senate] 

Eric Dinallo – 2008 Financial Crisis

(p60) – Response to Written Questions of the Senate Banking Committee from Eric Dinallo

 

  • “308 letter” “dinallo” “securities lending”

Meetings

  • 2008 0914 – GS-Starr-000000008 – 3p
    • Subject: Board meeting conclude.
    • We (TPG,KKR and GS)just met with company and advisors.
    • Subsequently the insurance regulator.
    • Explained we needed more time to finalize (48-72 hours).
    • We discussed at length term sheet. Sponsors suggested some indicative terms.
      We are going to work thru a work plan and divide up tasks appropriately.
      We told them they needed to raise at least 50 billion with 20 of equity. Fed discussions still ongoing. 
  • 2008 0915 – (c) “At 11:30 am on September 15, 2008, Mr. Willumstad, New York State Insurance
    Department Superintendent Eric Dinallo, FRBNY President Geithner, Treasury contractor Dan
    Jester, and certain Government officials, as well as representatives of Morgan Stanley,
    JPMorgan, and Goldman Sachs attended a meeting at FRBNY.” (Agreed to Stipulations ¶ 95)
    • Starr International Company, Inc. v. The United States – Case 1:11-cv-00779 – Document 428 – Plaintiff’s Proposed Findings of  Fact – 573p 

Testimony

  1. 2008 0214 – GOV (House) – The State of the Bond Insurance Industry – [PDF-473p – Video – Youtube (Part 1 of 2), Youtube (Part 1 of 2)
    1. Testimony – Eric Dinallo – NYSID
  2. 2008 0416 – GOV (House) – Examining Proposals on Insurance Regulatory Reform – [PDF-188p, No Video]
    1. Eric Dinallo, Interstate Compact, Optional Federal Charter,
  3. 2008 1007 – GOV (House) – Testimony of E Dinallo Before the House Oversight Committee_1.pdf – 8p
  4. 2008 1014 – GOV (Senate) – 2008-10-14 Dinallo Testimony Before the Senate Ag Committee_1.pdf – 8p
  5. 2010 0701 – 2008 Financial Crisis and Derivatives, Day 2, Regulators Panel – pdf-313p – CSPAN-Video
    • FCIC Testimony – Superintendent of the New York State Insurance Department, Eric Dinallo Testimony to FCIC (The Role of Derivatives) – 20p

FCIC / 2008 Crisis Documents

  1. 2008 0914 – FRBNY – Federal Reserve Bank re: Conference Call with Eric Dinallo … on the Financial Condition of AIG – 4p
  2. 2010 0610 – FCIC memo of staff interview with Eric Dinallo – [Link to page – Automatic Download – 7p]
  3. 2021 – YPFS Lessons Learned Oral History Project: An Interview with Eric Dinallo – 19p
    • 2021 – Lessons Learned: Eric Dinallo, Journal of Financial Crises – 6p

Media

  1. 2010 0202 – WSJ – by Eric Dinallo – What I Learned at the AIG Meltdown: State Insurance Regulation Wasn’t the Problem – [link]  
2010-06-10 COP AIG Rescue.pdf   Jun 10, 2010 … Committee on Banking, Housing, and Urban Affairs, Written Testimony of Eric Dinallo, superintendent, New York. State Insurance Department …   1 1 FINANCIAL CRISIS INQUIRY COMMISSION 2 Official Transcript … fcic-static.law.stanford.edu › fcic-testimony › 2010-0701-Transcript Thumbnail image   Jul 1, 2010 … Dinallo who was the Superintendent of Insurance, the. 23 insurance regulator in the State of New York, as well as a. 24 representative from the …   Financial Crisis Inquiry Commission Announces Witnesses and … fcic-static.law.stanford.edu › cdn_media › fcic-news › 2010-0629-Advisory Thumbnail image   Jun 29, 2010 … Eric R. Dinallo, former Superintendant. New York State Insurance Department. Gary Gensler, Chairman. Commodity Futures Trading …   Notes fcic-static.law.stanford.edu › fcic-reports › fcic_final_report_notes   Jun 30, 2010 … Superintendent Eric Dinallo, Review of the Role of Credit Derivatives in the U.S. Economy: Before the H. Comm. on. Agriculture, Nov. 20, 2008 …   APPENDIX B: LIST OF HEARINGS AND WITNESSES fcic-static.law.stanford.edu › cdn_media › fcic-reports › fcic_final_report_… Thumbnail image   Eric R. Dinallo, Former Superintendant, New York State Insurance Department. Gary Gensler, Chairman, Commodity Futures Trading Commission. Clarence K.   Resource Library: Financial Crisis Inquiry Commission fcic-static.law.stanford.edu › cdn_media › fcic-testimony   2010-0701-Dinallo.pdf, 67K. [ ] · 2010-0701-Bensinger.pdf, 15K. [ ] · 2010-0701- Athan-Frost-email.pdf, 36K. [ ] · 2010-0701-AIG-Goldman-supporting-docs.pdf …   1610390415-text02_Layout 1 fcic-static.law.stanford.edu › fcic-reports › fcic_final_report_index Thumbnail image   Dinallo, Eric, ,. Disclosure, – ,. Disintermediation,. Ditech,. Documentation on mortgage loans, – . Dodd …     Financial Crisis Inquiry Commission Releases Additional Material … fcic-static.law.stanford.edu › fcic-news › Press_Release_2.10.11.pdf Thumbnail image   Feb 10, 2011 … James. Dimon. JPMorgan Chase. Eric R. Dinallo. New York State Insurance Department. Dianne. Dobbeck. Federal Reserve Bank of New York.   Michael Greenberger Follow Up fcic-static.law.stanford.edu › cdn_media › fcic-testimony › Derivatives Thumbnail image File Format: PDF/Adobe Acrobat   Sep 13, 2010 … 110th Cong. 3 (Oct. 14, 2008) (opening statement of Eric Dinallo, Superintendant, New York State. Insurance Dept., stating that ―[w]e engaged …   Resource Library: Financial Crisis Inquiry Commission fcic-static.law.stanford.edu › cdn_media › fcic-docs  
  • x – 2010-06-04 MFR of Interview with Eric Dinallo_1.pdf
  • b. Key Quotes – Eric Dinallo_1.pdf
  • d. 2009-03-05 E Dinallo Tesimony Before the Senate Banking Committee_1.pdf
  • b-i. Dinallo written tstmny for FCIC 7-1-10_1.doc
  • Notes of 9_14_08 conference call with Dinallo FCIC-AIG0021169- 72_1.pdf – R
  • 2010-07-09 FCIC ltr to Mr. Dinallo_1.pdf

NAIC to Government

2000s

  • 2005 0318 – Letter – NAIC (Koken) to GOV (House – Oxley and Baker) – 4p
    • Dear Chairmen Oxley and Baker:
      • I received your March 9, 2005 letter expressing concern about a lack of communication between the National Association of Insurance Commissioners (NAIC) and Congress in recent months.
    • Diane Koken, Commissioner of Insurance, Pennsylvania, President, NAIC
  • 2008 0708 – Letter – NAIC (Sandy Praeger – KS)to GOV (House – Kanjorski) – Letter – 2p
    • We are writing to express the views of the National Association of Insurance Commissioners (NAIC) on the Manager’s Amendment to H. R. 5840, the Insurance Information Act of 2008.
    • We have seen what ERISA and other Federal preemption has done to the health insurance market and to consumer protections, and we do not want to spread that level of dysfunction to the rest of the insurance arena. For these reasons, we reviewed the Insurance Information Act of 2008 with great caution.
  • 2008 0911 – Letter – NAIC to GOV (House – Kanjorski) – 2p
    • As the primary protectors of insurance consumers, we thank you for including these significant improvements and we appreciate your patience as we have worked to provide constructive feedback on the legislation.
  • 2008 1006 – Letter – (Sandy Praeger – KS) to GOV (House – Waxman, Davis) – [link to NAIC Page – 4p]
    • (p1-2) – The problems stem from the operations of AIG’s holding company, its financial products division, and its securities lending division, regulated at the Federal level by the Office of Thrift Supervision (OTS).
  • 2009 0227 – Letter – NAIC to Federal Reserve (Baxter) – 2p
    • <WishList> – On behalf of the National Association of Insurance Commissioners, I would like to thank you and your staff for taking the time to meet with State insurance commissioners, directors and superintendents, and their staffs, by conference call on Wednesday, February 25.
      • We value the candor and cooperation that have characterized our dialogue with the Federal Reserve Bank of New York (“FRBNY”) during our collective response to matters affecting AIG.
    • <WishList> – I am writing specifically to comment on the letter dated February 20, 2009 from Ms. Sarah Dahlgren, FRBNY Senior Vice President, to each of the 20 State insurance commissioners with primary regulatory oversight of the AIG insurance companies and to clarify the discussion from our conference call.
  •  [PDF-380p]
    • Policyholder Protection
    • Mr. Kanjorski: And I know you are here for the National Insurance Commissioners, but could you give us an idea whether there is any real negative impact or risk to the insurance policyholders of AIG, specifically in Pennsylvania, but then as you may know, countrywide.
    • Mr. ARIO:  Even if there were more threats, of course, the policyholders under these insurance companies would be fully protected.
    • Chairman KANJORSKI:  So as I understand that, trying to be fair, if I were a policyholder, I would not fear the fact that my policy will be honored, can be honored, and the funds are there protecting me. So it will be honored; is that correct?
    • Mr. ARIO. That is absolutely correct.
    • Chairman KANJORSKI. Very good. (p24)
  • 2009 1023 – Letter – NAIC (CEO-Vaughan) to GOV (Member of Congress) – 2p
  • 2009 1117 – Letter – NAIC to GOV (Frank, Kanjorski, Bachus, Biggert) – NAIC letter to the House Committee on Financial Services regarding The Federal Insurance Office Act of 2009, Manager’s Amendment – 2p
  • 2009 1120 – Letter – NAIC to GOV (Carolyn B. Maloney, Chair, Joint Economic Committee, JEC) – 1p
    • We are writing to correct a  misstatement by Treasury Secretary Timothy Geithner at the Joint Economic Committee’s November 19, 2009 hearing, titled “Financial Regulatory Reform: Protecting Taxpayers and the Economy.”
    • Secretary Geithner asserted that the reason for the federal government’s bailout of AIG was a fear that AIG might not have been able to pay claims to its insurance policyholders.
    • That flies counter to the Treasury Department’s long-held assertion that the bailout was needed to prevent financial loss to AIG’s counterparties in its credit default swap (CDS) transactions.
    • It also belies the facts. AIG’s state-regulated insurance subsidiaries were, and still are, safe and solvent. Money to pay policyholders was protected from being used for other purposes, and was never at risk.
    • That is because of to state insurance regulators’ ability to “ring fence” solvent insurance entities of a group to shield them from the parent’s corporate losses or bankruptcy in order to protect consumers.
    • This change in rationale by Secretary Geithner is confusing at best, misleading at worst.

2010s

  • 2010 0129 – Letter – NAIC to GOV – NAIC response (as distributed on the Hill) to AIG “Dear Colleague” letter – [link to 1p]
    • (Bean / Royce – July 31, 2009 Dear Colleague Letter – 6p
  • 2010 0410 – Letter – NAIC to GOV (Senators – All) – re:  NAIC letter to Senators on the Restoring American Financial Stability Act of 2010 (RAFSA) – 4p
    • If a study is necessary, we urge the Senate to request the study from an objective body, such as the Government Accountability Office (GAO).
  • 2010 0420 – Letter – NAIC to Senators – re: Restoring American Financial Stability Act of 2010 (RAFSA) – 4p
    • Further, state guaranty funds protect policyholders from any shortfalls. (p2)
  • 2010 0603 – Letter – NAIC to GOV (Frank, Bachus, Dodd, Shelby) – re: Conference on Financial Regulatory Reform Legislation – 4p
  • 2010 11 – Letter – NAIC to SEC / CFTC – Re: Follow-up to September 29, 2010 Meeting with SEC and CFTC Staff – 4p
  • 2011 0209 – Letter – NAIC to GOV (Geithner, DOTT) – 4p
    • Understanding the impact of systemic risk on the insurance sector and how the business of insurance interacts with other activities and products within a potentially systemic institution is – and will continue to be – best understood from the perspective of the industry’s functional regulator. 
  • 2015 0325 – Letter – NAIC to GOV (Shelby / Brown) – Re: Hearing entitled “FSOC Accountability: Nonbank Designations” – 3p
  • 2017 0426 – GOV (House) – A Legislative Proposal To Create Hope And Opportunity For Investors, Consumers, And Entrepreneurs
    • [PDF-538p, Video-Youtube
    • (p200-202) – NAIC – Written statement of the National Association of Insurance Commissioners
  • 2018 04 – Letter – NAIC to GOV – Government Relations CFPB Reform – 1p
  • 2017 0807 – Letter – NAIC to DOL / EBSA – Re: RIN 1210-AB82 Request for Information Regarding the Fiduciary Rule and Prohibited Transaction Exemptions – 4p
    • While the DOL has shared jurisdiction with the states with respect to insurance products sold through ERISA plans, states have regulatory responsibilities with respect to the entire market for such products, including disclosure requirements, professional standards of conduct for agents, and supervisory controls.

2020s

  • 2021 0330 – Letter – NAIC to GOV (Scott, Manchin) – Re: The Business of Insurance Regulatory Reform Act – 2p
  • 2021 0512 – Letter – NAIC to GOV (Garamendi, Loudermilk) – re: support for H.R. 3099, the Primary Regulators of Insurance Vote Act of 2021 – 2p
  • 2021 05 – Letter – NAIC Letter to GOV
    • re: FSOC Vote for Insurance Regulators (H.R. 3099) – 1p
    • Issue Brief
  • 2021 0903 – Letter – NAIC Letter to GOV ( James Comer) – Re: Examination of Recent Trends in Regulation and Regulatory Reform – 10p

Regulatory Forbearance

  • 2021 – AP – Regulatory Forbearance in the U.S. Insurance Industry: The Effects of Removing Capital Requirements for an Asset Class, by Bo Becker (Stockholm School of Economics, CEPR, and ECGI), Marcus M. Opp (Stockholm School of Economics and CEPR), Farzad Saidi
    University of Bonn and CEPR), The Review of Financial Studies, Volume 35, Issue 12, December 2022, Pages 5438-5482 – 45p
  • Upon finding solvency problems, California and New York regulators initially chose to forbear rather than promptly disclose the Executive Life insurers’ true condition. 

1992 0909 – GAO – Regulators Failed to Respond in Timely and Forceful Manner in Four Large Life Insurer Failures – T-GGD-92-43 – 29p

  • The 29 – percent rate hike was absolutely necessary to keep the company going.
  • As I say, I came very close.
  • I allowed them to discount reserves for a period of 6 months because they needed that in order to get over the hump.  (p50)

—  Mr. Muhl, Maryland Insurance Commissioner

1986 0121 0122 – GOV (House) – The Liability Insurance Crisis – [PDF-553p-GoogIePIay

  • GAO has indicated that the dreaded forbearance word was at fault in failing to mitigate, if not prevent, these financial failures. (p3)
  • The failures of Executive Life, First Capital and Fidelity Bankers last year have raised concerns about the financial condition of the insurance industry, the adequacy of regulatory supervision, as well as the sufficiency of policyholder protection provided by insurance guarantee funds. (p2)

—  Senator Jake Garn 

1992 0218 – GOV (Senate) – Causes and Implications of Insurance Company Failures – [PDF- 425p-GooglePlay

  • ⇒  on the Concerns about the Financial Condition of the Insurance Industry, the Adequacy of Regulatory Supervision, as Well as the Sufficiency of Policyholder Protection Provided by Insurance Guarantee Funds
  • 2008 0913 – FCIC – FRBNY Email Mahoney and Mosser re AIG Update – SB-AIG-35651 – 1p
    • AIG has put together a term sheet for NYSID, which they will be discussing this evening.
    • The term sheet would outline all pieces of liquidity plan, and plans for debt and equity injections, plans for asset sales as well as regulatory forebearance to move assets from subs to parent.
    • NYSID: Dinallo outlined the same plan that AIG gave us earlier — ie move muni’s from P&C subs to parent, and parent send equity in life insurance subs to the P&C subs in return.
    • There are a number of multi-state regulatory hurtles to this, but Dinallo thinks it is possible to do.
    • Dinallo described P&C companies in NY and PA as having very large capital cushions, and so he thinks that they can accommodate this.
    • He also noted negative consequences in insurance markets in general if AIG goes down (ie cost of insurance is likely be much higher if they file) and negative consequences in muni bond market if GICs default so regulatory forbearance can be justified politically.
    • They are very happy to speak with our experts (Elise and team) tomorrow with more details.
    • My impression is that while they are comfortable with the capital dilution at the P&C companies, they are less knowledgable and comfortable about the equity value of the life companies, so they have work to do on that front.
  • 2005 – BIS – Liquidity Risk and Contagion – 31p
    • Regulators are familiar with the potentially destabilizing effect of solvency constraints in distressed markets.
      • To take a recent instance, in the days following the September 11th attacks on New York and Washington financial markets around the world were buffeted by unprecedented turbulence.
      • In response to the short term disruption, the authorities suspended various solvency tests applied to large financial institutions such as life insurance firms.
      • In the U.K., for instance, the usual ‘resilience test’ applied to life insurance companies in which the firm has to demonstrate solvency in the face of a further 25% market decline was suspended for several weeks.
      • 1 FSA Guidance Note 4 (2002), “Resilience test for insurers”. See also FSA Press Release, June 28th 2002, no FSA/PN/071/2002, “FSA introduces new element to life insurers’ resilience tests”.
  • Chris Seefer: Any views on the role of accounting, mark‑to‑market accounting in the unintelligible] –
  • Mr. Buffett: I’m less religious about it than I used to be.
    • Because, well, after ’29, in the insurance business, they put in so‑called ‑‑ I forget, they had a term for it, but I think it was called ‑‑ it was basically commission or evaluations of some sort; and they did not make insurance companies write their stuff down because they said, you know, you’re basically putting them all out of business, and these are temporary things.
    • And the truth was, they probably benefitted the country that they didn’t liquidate all the insurance companies in the early ’30s based on what would have been, in effect, been mark‑to‑market accounting.

FCIC Interview – Warren Buffet 

RBC – Risk-Based Capital

  • 1993 01 – SOA – NAIC Approves Risk-Based Capital Model Law for Life & Health Insurers, Actuarial Update – %201993%20Actuarial%20Update, January 1993 Actuarial Update – Society of Actuaries – 8p
  • 1993 ? – Academy and NAIC Collaborate on Risk-Based Capital Formula – <WishList>
  • 1996 – SOA – Investment under the Risk-Based Capital (RBC) and Rating Agencies Requirements, rsa96v22n125i – Society of Actuaries – 16p
  • In June 2013, the New York Department of Financial Services (“DES”) concluded a nearly year-long investigation into life insurer-owned captive insurance vehicles.1
    • Upon finding that New York-based insurers and their affiliates engaged in at least $48 billion in transactions that enabled them to reduce their reserves and artificially inflate their balance sheets by juicing their risk-based capital ratios by approximately 250%, DFS urged fellow state insurance commissioners to adopt a national moratorium with regard to future captives transactions until a fuller and more complete picture could emerge that would inform collective decision-making.  (p1)

2014 0812 – Letter – New York Department of Financial Services (Ben Lawsky) to State Insurance Commissioners, plus Jacob Lew (DOTT), Michael McRaith (FIO) – <WishList>

Best Interest Standards

  • 2018 – SOA – Changing the Retirement Advice Conversation, 2018-securing-future-retirements-chamberlain-cheng-durbin-sokolic – Society of Actuaries – 5p
  • 2023 0520 – Letter – Barry Flagg / Veralytic to Finseca – 2p
    • I regret to have to resign from Finseca … again, for the following reasons.
      • California Best Interest Rule for insurance products (i.e., CA SB 264). 
      • Lobbying against Client’s Best Interest rules is lobbying for preservation of current NAIC-based regulations that permit agents, brokers and insurers to “quote” low premiums while charging HIGH costs withOUT disclosing either those HIGH costs nor the HIGHer risks of future “premium calls” for more than the originally “quoted” premium or total loss due to policy lapse even when all originally “quoted” premiums were paid.
      • Such “bait-and-switch” sales and marketing practices foster DIS-trust blocking financial security for all, and continue to divide the financial security profession.
      • This current regulatory regime creates an environment where the reckless get rewarded and the prudent get punished.
      • I likewise believe Client’s Best Interests rules for life insurance are BOTH needed to protect consumers against “bait-and-switch” sales and marketing practices AND will lead to sales growth.
      • Insurance products are the last, largest, most-neglected and worst-performing assets on client’s balance sheets (e.g., WSJ: Universal Life Insurance, a 1980s Sensation, Has Backfired – [link-f]). – [Bonk: by Leslie Scism]
      • Client’s Best Interest rules harmonize the operating principles necessary to enable more financial advisors to have more conversations like this with more customers, resulting in BOTH greater financial security for all AND growth in sales.

Systemic Risk – NAIC

  • The very nature of insurance significantly reduces the potential of a run-on-the-bank scenario for property/casualty, health and most life insurance products.
  • For those limited products sold by insurers that could be subject to some level of run risk, mitigating factors exist such as policy loan limitations, surrender/withdrawal penalties, and additional taxes.
  • Additionally, insurers typically maintain a diverse product mix so only a portion of the company’s products would be subject to the already reduced level of run risk.
  • Importantly, insurance products unlike other financial products, do not transform short term liabilities into longer term assets.
  • Insurance has shorter duration liabilities in many of the property/casualty and health product lines, and the assets held are similarly short term.
  • Insurance has longer duration liabilities in life and annuity product lines, and these liabilities are matched against similarly longer term assets.
  • To be clear, though, the business of life insurance, in and of
    itself, does not pose systemic risk to the broader economy or the U.S. financial system.

—  Kevin M. McCarty – NAIC Testimony- Commissioner, Florida Office of Insurance Regulation and President of the National Association of Insurance Commissioners

2012 1129 – GOV – Examining the Impact of the Proposed Rules To Implement Basel III Capital Standards 

  • [PDF – 439p, 
  • Committee on Financial Services – Joint Hearing Before the Subcommittee on Financial Institutions and Consumer Credit and the Subcommittee on Insurance, Housing and Community Opportunity