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

GAAP – Generally Accepted Accounting Principles

  • First, let me remind you of the brief history of GAAP for life insurance companies.
  • You will recall that the first exposure draft of the American Institute of Certified Public Accountants (AICPA) appeared in December, 1970.

— John H. Biggs

1976 – SOA – Trends in GAAP and Statutory Financial Statements, rsa76v2n28 – Society of Actuaries – 14p

  • 1976 – SOA – Trends in GAAP and Statutory Financial Statements, rsa76v2n28 – Society of Actuaries – 14p
  • 1984 – SOA – The Actuary, act8403 – Society of Actuaries – 8p
  • 1987 – SOA – A Comparison of Alternative Generally Accepted Accounting Principles (GAAP) Methodologies for Universal Life, by S. Michael Mclaughlin, tsa87v398 – Society of Actuaries – 46p
  • 1989 – SOA – Pricing Considerations on a GAAP Basis, rsa89v15n3a8 – Society of Actuaries – 16p
  • 2003 – SOA – VASP – GAAP for Nontraditional Long-Duration Contracts, va03-36ts – Society of Actuaries – 23p
  • 2006 – Book – US GAAP for Life Insurers, Second Edition, R. Thomas Herget, Editor – 675p
  • 2013 10 – SOA – Insurance Accounting on One Foot: Read about the differences between the FASB ED and the ED published nearly simultaneously by the International Accounting Standards Board, By Henry Siegel and William Hines – Society of Actuaries- 8p
  • Daniel F. Case
  • ATTACHMENT TWO-A
    • Financial Standards Subcommittee
    • Accounting Manual Draft – Generally Accepted Accounting Principles (GAAP) – (p20)

1988-2, NAIC Proceedings

  • The only exception to this approach was for universal life-type policies under U.S. GAAP where premium is treated as a deposit and only charges to customers are shown as revenue.

2013 10 – SOA – Insurance Accounting on One Foot: Read about the differences between the FASB ED and the ED published nearly simultaneously by the International Accounting Standards Board, By Henry Siegel and William Hines – Society of Actuaries- 8p

Bills

  • 1979 1127 / 1980 0303, 0306 and 0501, 0522 – GOV (House) – Confidentiality of Insurance Records, Richardson Preyer (D-NC)
    • Insurance Records Hearings
    • [PDF-689p-GooglePlay]
    • House – Committee on Government Operations – Subcommittee
    • on H.R. 5646 … H.R. 6518 … H.R. 7052 …
    • (p1) – Richardson PREYER (D-NC) – Today the subcommittee begins hearings on the administration’s Fair Insurance Information Practices Act.
      • The bill sets uniform nationwide standards for the handling of personal information by insurance companies but leaves it up to the individual citizen or the State insurance commissioner to enforce the standards.
  • NIA – National Insurance Act
    •  S. 2509 – National Insurance Act
      • by Senators John Sununu and Tim Johnson
    • S. 40, the National Insurance Act
    • cxcv
      • The National Insurance Act of 2007 (S. 40/H.R. 3200)
        • Both the states and the federal government would offer a chartering system for insurers, with the insurers having the choice between the two. OFC legislation was offered in the 107th, 109th, and 110th Congresses.
        • 110th Congress
          • Senators John Sununu and Tim Johnson introduced S. 40 on May 24, 2007 and Representatives Melissa Bean and Edward Royce introduced H.R. 3200 on July 26, 2007. The bills were referred to the relevant committees (Senate Banking, Housing, and Urban Affairs, House Financial Services, and House Judiciary), but neither was the specific subject of hearings or markups.
          • Two general hearings on insurance regulatory reform, however, were held by the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises in
            October 2007, and the possibility of an optional federal charter was a major topic of discussion in the subcommittee.
  • S. 929, the Nonadmitted and Reinsurance Reform Act
  • House Financial Services Committee in H.R. 1065, the Nonadmitted and Reinsurance Reform Act.

https://www.cooley.com/news/insight/2021/2021-01-20-new-congress-legislation-impacting-insurance-big-data-possible

1900s-1940s

  • 1907 – Tillman Act
  • 1927 – McFadden Act
    • 1984-2, NAIC Proceedings – Integrated Financial Services (EX) Task Force
      • —  Daniel Murphy, Executive Vice-President, E.F. Hutton
        • When Congress passed the McFaddin Act in 1927, it “leveled the playing field” by reducing restrictions on bank activities in other lines of commerce and that disastrous results ensued. (p72)
  • 1936 0615 – Commodity Exchange Act (ch. 545, 49 Stat. 1491, enacted June 15, 1936) is a federal act passed in 1936 by the U.S. Government (replacing the Grain Futures Act of 1922).
  • 1945 – McCarran-Ferguson
    • Senator Pepper

1970s

  • 1974 – Privacy Act of 1974
    • 1977 0712 – GOV – Report – Final Report of the Privacy Protection Study Commission – 690p
      • (p180) – Current Legal Restraints on Record-Keeping Practices – The Insurance Relationship
        • The primary regulatory mechanisms for overseeing the activities of  Insurance institutions are at the State level. State regulation has developed around two basic aims: (1) maintaining the solvency of individual insurance companies; and, (2) assuring fair business practices and pricing.
  • 1975 – Consumer Insurance Information and Fairness Act
    • 3. S.2065 – 94th Congress (1975-1976)
    • Sponsor: Hart, Philip A. [Sen.-D-MI] (Introduced
    • 07/08/1975) Cosponsors: (0)
    • Committees: Senate – Commerce
    • Congressional Record – Vol 121, No 106, 1975 0708
    • 1977 0329 – GOV (House) – Antitrust Exemptions and Immunity,
  • 1975 – Consumer Insurance Information and Fairness Act –
    • 18. H.R.8445 – 94th Congress (1975-1976)
    • Consumer Insurance Information and Fairness Act
    • Sponsor: Spellman, Gladys Noon [Rep.-D-MD-5]
    • (Introduced 07/08/1975) Cosponsors: (0)
    • Committees: House – Interstate and Foreign Commerce
    • 1975 0714 – The Piqua Daily Call – Getting Most Out of Your Insurance?, by Arthur E. Rowse – Page 20 – [link]
  • 1975-1976 – S.2218 – A bill to amend chapter 19 of title 38, United States Code, to require the Administrator of Veterans’ Affairs to provide veterans with certain cost information relating to the conversion of Government supervised insurance to individual life insurance policies. – 94th Congress  
  • 1977 – Federal Insurance Act of 1977
  • 1979-1980 – H.R.5582 – Fair Insurance Information Practices Act, 96th Congress
  • 1979-1980 – S.2874 – A bill to amend the Bank Holding Company Act of 1956 to limit the property and casualty and life insurance activities of bank holding companies and their subsidiaries. 96th Congress
  • 1981-1982 – H.R.2255 – link – 97th Congress (1981-1982)A bill to amend the Bank Holding Company Act of 1956 to limit the property and casualty and life insurance activities of bank holding companies and their subsidiaries.
    • Sponsor: Rep. St Germain, Fernand J. [D-RI-1] (Introduced 03/03/1981) Cosponsors: (4) – Committees: House – Banking, Finance, and Urban Affairs Latest Action: House – 03/16/1981 Referred to Subcommittee on Financial Institutions Supervision, Regulation and Insurance. (All Actions)
  • 1981 – Non-discrimination in Insurance Bill –
    • 1982 0715 – GOV (Senate) – Fair Insurance Practices Act, Bob Packwood (R-OR)  —  [BonkNote]
  • 1982 – Garn-St. Germain Depository Act of 1982 : conference report (to accompany H.R. 6267)., 85-7813 – 80p
    • 1982 1015 – President Ronald Reagan – Remarks on Signing the Garn-St Germain Depository Institutions Act of 1982 – [link]
      • Thank you all very much, and thank you for joining us to sign this historic reform. This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions.
      • Now, this bill also represents the first step in our administration’s comprehensive program of financial deregulation. I particularly want to commend the leadership of the chairman, Senator Garn, and Chairman St Germain, along with Secretary Regan and his fine team at Treasury. They did a remarkable job forging a consensus within the Congress and among affected industries in favor of the bill’s deregulatory provisions. I’d like to also thank Congressmen Stanton, Wylie, and LaFalce for their assistance.
      • What this legislation does is expand the powers of thrift institutions by permitting the industry to make commercial loans and increase their consumer lending.
      • Unfortunately, this legislation does not deal with the important question of delivery of other financial services, including securities activities by banks and other depository institutions. But I’m advised that many in the Congress want to put this question at the top of the banking deregulatory agenda next year, and I would strongly endorse such an initiative and hope that at the same time, the Congress will consider other proposals for more comprehensive deregulation which the administration advanced during the 97th Congress.
  • 1983-1984 – H.R.4556 – link – 98th Congress (1983-1984. )A bill to amend the Federal Credit Union Act (12 U.S.C. 1751 et seq.) to correct the tax status of the National Credit Union Central Liquidity Facility.
    • Sponsor: Rep. St Germain, Fernand J. [D-RI-1] (Introduced 11/18/1983) Cosponsors: (2) 
    • Committees: House – Banking, Finance, and Urban Affairs
    • Latest Action: House – 12/15/1983 Referred to Subcommittee on Financial Institutions Supervision, Regulation and Insurance. 
  • 1983-1984 – Financial Institutions Deregulation Act which has been introduced both in the Senate 1609 and the House – H.R 3537
  • 1991-1992 – H.R.4900 – Federal Insurance Solvency Act of 1992 – 102nd Congress
    • Sponsor: Rep. Dingell, John D. [D-MI-16]
    • (Introduced 04/09/1992) – Committees: House – Energy and Commerce
  • 1992 – Presidential Insurance Commission Act of 1992
  • 1993-1994 – S.84 – Insurance Competitive Pricing Act of 1993, 103rd Congress- more years
  • 1994 – HOEPA – Home Ownership and Equity Protection Act of 1994 
  • 1995 – Financial Services Competitiveness Act of 1995  —  [BonkNote]
  • 1995-1996 – H.R.1058 – Private Securities Litigation Reform Act of 1995, 104th Congress
    • Sponsor: Rep. Tom Bliley [R-VA]
    • 1998 – LR – Closing The Loophole In The Private Securities Litigation Reform Act Of 1995 – 40p
      • In response to the perceived rise in “abusive” and “meritless” securities fraud lawsuits, Congress overrode President Clinton’s veto and enacted the Private Securities Litigation Reform Act of 19951
  • 1995-1996 – H.R. 1317 (IH) – Insurance State’s and Consumer’s Rights Clarification and Fair Competition Act of 1995
  • 1998 – Class Action Jurisdiction Act of 1998
  • 1999 1112 – GLBA –Gramm Leach Bliley Act  — [BonkNote]
    • aka – the Financial Services Modernization Act of 1999
    • 1999 1112 – Financial Services Bill Signing, President Clinton – [VIDEO-CSPAN]
    • 1999 – H.R.10 – Financial Services Act of 1999
  • 2000 1221 – CFMA – Commodity Futures Modernization Act  —  [BonkNote]
  • 2003 – Former Insurance Agents Tax Equity Act of 2003
  • 2005 – The Class Action Fairness Act – [PDF-12p]
  • 2005 0616 – GOV (House) – Smart Insurance Reform – [PDF-157p,
  • 2005-2006 – H.R.461 – Military Personnel Financial Services Protection Act – 109th Congress
  • 2008 0610 – GOV (House) – H.R. 5840, Insurance Information Act of 2008 – [PDF-129p]
    • Paul Kanjorski – (D-PA) – As such, the Federal Government should have a deep knowledge base on the insurance industry.
      • We need to understand how the industry functions.
      • We need to ascertain its relationship to other sectors of the financial marketplace.
      • We need to appreciate its importance in our economy.
      • The establishment of an in-house information resource to address these issues will ultimately help us to construct better policies, better rules, and better laws.
    • From this conversation, I learned that there were only two staffers working on insurance issues at that time. In a time of crisis, this lack of in-house expertise was troubling.
  • 2008 – EESA – Emergency Economic Stabilization Act 
  • 2009-2010 – H.R.2609 – Insurance Information Act of 2009
  • 2009 0326 – GOV (House) – Addressing the Need for Comprehensive Regulatory Reform – [PDF-64p, VIDEO-?]
    • Secretary GEITHNER. Would that be in the Treasury, that office?
    • Mr. KANJORSKI. Yes. In Treasury.
    • Secretary GEITHNER. We would not be opposed to that. Anything you can do to help us get more resources and talent in this area would be terrific.
    • Mr. KANJORSKI. Very good
  • 2009-2010 – The Restoring American Financial Stability Act of 2010 – 251p
    • Sponsor: Sen. Dodd, Christopher J. [D-CT] (Introduced 04/15/2010)
  • 2010 0721 – Dodd-Frank  —  [BonkNote]
  • 2010 – Consumer Financial Protection Act of 2010 
  • Choice Act
  • 2010 – S.3217, the Restoring American Financial Stability Act of 2010 (RAFSA)
    • 2010 0430 – GOV (Senate-Report) – The Restoring American Financial Stability Act of 2010 – 251
  • 2010 – Federal Insurance Office Act of 2010 (FIO Act)
  • 2011-2012 – S.Res.270 – 112th Congress (2) – A resolution supporting the goals and ideals of “National Life Insurance Awareness Month” – Sponsor: Sen. Nelson, Ben (D-NE)
  • 2013-2014 – Congress in passing the Insurance Capital Standards Clarification Act of 2014 during the 113th congressional session.
  • 2015 – GOV (Bill) – Policyholder Protection Act  —  [BonkNote]
    • H.R. 1478, the “Policyholder Protection Act,” by Reps. Bill Posey (R-Florida) and Brad Sherman (D-California).
  • 2016 – GOV (House) – Tranparent Insurance Standards Act of 2016 – 21p
    • The Committee on Financial Services, to whom was referred the bill (H.R. 5143) to provide greater transparency and congressional oversight of international insurance standards setting processes, and for other purposes, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended do pass
  • 2017 0417- Financial Choice Act – A Republican Proposal to Reform the Financial Regulatory System –147p
  • 2017 – Business of Insurance Regulatory Reform Act (H.R. 3746)
  • 2018 – S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection bill, which would ease banking regulations under the 2010 Dodd-Frank financial reform law.
    • She focused on the bill’s effect on customers and smaller banks
  • 2019-2020 – H.R. 1862: Federal Insurance Office Abolishment Act of 2019
  • 2020 – S. 4325 (IS) – Business of Insurance Regulatory Reform Act of 2020
  • 2020 – Business of Insurance Regulatory Reform Act  —  [BonkNote]
  • 2021 – Primary Regulators of Insurance Vote Act  —  [BonkNote]
  • It was in this atmosphere of rampant corporate contributions to campaign funds that reformers advocating for legislative intervention commenced a process that ultimately produced the Tillman Act.
    • Beginning in 1905, the issue of corporate political contributions rose to the height of public consciousness, largely as a result of riveting hearings in New York that exposed a series of abuses by life insurance companies.
    • Middle class reformers, fueled by longstanding suspicions of business-government corruption and sparked by a campaign finance scandal involving life insurers, ardently advocated the banning of corporate political contributions.
    • Many of the nation’s businesses, mindful of their profit lines and sustainability, also voiced their support for remedial legislation and joined reformers in seeking such a prohibition.
  • In early 1906, Senator Ben Tillman of South Carolina formally introduced his eponymous bill, and  Congress passed the legislation a year later.
    • Popular support was such that one member of Congress remarked, “Every honest man in this country is for it, and I doubt very much whether any Republican or Democrat can safely afford to face his constituency in opposition to it.”16
  • Yet the passage of the Tillman Act presented something of a paradox. (p7)

2016 – AP – Limits of Reform: The Tillman Act of 1907 and the Conservative Origins of American Campaign Finance Law, by David Steven Wanger Steinbach – [Automatic-Download-link]

Dodd-Frank Act

  • 2010 0817- CRS – The Dodd-Frank Wall Street Reform and Consumer Protection Act: Insurance Provisions – 9p
  • NAIC – SPECIAL SECTION: DODD FRANK FINANCIAL REFORM LEGISLATION & STATE INSURANCE REGULATION – [link]
  • State insurance regulation was not a factor in the economic downturn and should not be swept into any proposed financial services overhaul.

2009 0402 – Letter – NCOIL to (GOV) – Senators Dodd and Shelby, and Congressmen Frank, Shelby, Bachus – 2p

  • (p61) – NASAA – Prepared Statement of David Massey,  NASAA President and North Carolina Deputy Securities Administrator
  • F. Improving Regulation of Financial Planners (Section 919C)
  • Section 919C of Dodd-Frank required a GAO study of the adequacy of financial planning regulation.
    • Deferring to a study was a reasonable approach for Congress to take, since the crowded legislative calendar in the midst of the crisis did not allow for an adequate review of the issues or of various proposals that have been put forward to improve financial planning regulation.
      • Unfortunately, the GAO study on financial planning regulation,7 which was released in January, represents a real missed opportunity.
    • ⇒  While it correctly highlights problems with the weak conduct standards that apply to insurance agents, it fails to address the basic question of how best to regulate activity that cuts across a variety of regulatory domains.8
    • This is an important question that deserves more thoughtful analysis than it received in the GAO study.
    • Indeed, we would encourage this Committee to look into the issue once the press of overseeing implementation of Dodd-Frank has passed.
  • State regulators bring to the FSOC the insights of ”first responders” who see trends developing at the State level that have the potential to impact the larger financial system.

2011 0712 – GOV (Senate-Banking) – Enhanced Investor Protection After The Financial Crisis, Tim Johnson, (D-SD)  —  [BonkNote]

  • Created FSOC – Pub. L. No. 111-203, §§ 111-23, 124 Stat. 1376, 1392-1412 (2010) (codified as amended at 12 U.S.C. §§ 5321-33). 
  • TOC – PART 242-DEFINITIONS RELATING TO TITLE I OF THE DODD-FRANK ACT (REGULATION PP) Sec.
    • 242.1 Authority and purpose.
    • 242.2 Definitions.
    • 242.3 Nonbank companies ”predominantly engaged” in financial activities.
    • 242.4 Significant nonbank financial companies and significant bank holding companies.
  • APPENDIX A TO PART 242-FINANCIAL ACTIVITIES FOR PURPOSES OF TITLE I OF THE DODD-FRANK ACT AUTHORITY: 12 U.S.C. 5311.
  • SOURCE: 78 FR 20776, Apr. 5, 2013, unless otherwise noted..

https://www.congress.gov/bill/111th-congress/house-bill/4173

Title V: Insurance – Subtitle A: Federal Insurance Office – Federal Insurance Office Act of 2010 – (Sec. 502) Establishes in the Treasury the Federal Insurance Office (FIO) authorized to: (1) monitor the insurance industry; (2) identify issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system; (3) monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products covering all lines of insurance, except health insurance; (4) recommend to the Financial Stability Oversight Council that it designate an insurer, including its affiliates, as an entity subject to regulation as a nonbank financial company supervised by the Board of Governors; (5) assist in administering the Terrorism Insurance Program; and (6) coordinate federal efforts and develop federal policy on prudential aspects of international insurance matters.

Extends the authority of the Office to all lines of insurance except: (1) health insurance; (2) crop insurance; and (3) long-term care insurance (except long-term care insurance included with life or annuity insurance components).

Authorizes information-gathering from insurers and affiliates. Permits data or information obtained by the Office to be made available to state insurance regulators, individually or collectively, through an information-sharing agreement.

Grants the Director of the Office subpoena and enforcement powers.

Sets forth a limited preemption of state insurance measures.

Requires the Director of the Office to study and report on: (1) U.S. and global reinsurance markets; and (2) modernization and improvement of domestic insurance regulation.

Guaranty Funds

  • NAIC – National Association of Insurance Commissioner
    • Financial Condition Committee – (E) – NAIC  —  [BonkNote]
    • Guaranty Fund Issues Working Group – (E) – NAIC  —   [BonkNote]
    • NAIC – Life and Health Insurance Guaranty Association Model Act – 68p
  • NCIGF – National Conference of Insurance Guaranty Funds – ncigf.org/   —  [BonkNote]
  • NOLHGA – National Organization of Life and Health Insurance Guaranty Associations  —  [BonkNote]
  • Penn Treaty
  • (p515) – The working group identified several issues relevant to the charges, including:
    • Does the current structure for handling life insurer insolvencies encourage a policyholder “run”?

1995-2, NAIC Proceedings – Guaranty Fund Issues Working Group – (E) – NAIC

  • Most insurers face risk and uncertainty from a source not normally covered by classical theory of risk texts. This additional element of risk is insolvency, not of your company, but that of other licensed insurers.

—  Joseph W. LEVIN, not a member of the Society, is a fellow of the Casualty Actuarial Society and Vice President and Actuary of the Employers Reinsurance Corporation. 

1978 – SOA – Capacity and Solvency — The Outside Influence, Society of Actuaries – 20p

  • 1978 – SOA – Capacity and Solvency — The Outside Influence, Society of Actuaries – 20p
  • 1986 – SOA – Guaranty Funds, Society of Actuaries – 22p
  • 1991 0926 – GOV (House) – Resolution of Troubled Insurance Companies and the Role of State Guaranty Associations – [PDF-151p-GooglePlay]
  • 1992 – NAIC – Issues Concerning Insurance Guaranty Funds, by Robert Klein – 317p
  • 1992 – SOA – Guaranty Fund System, Society of Actuaries – 14p
  • 1993 0111 – Ledger-Enquirer – State Guaranty Funds Need to be Overhauled, by Jane Bryant Quinn – [link-newspapers.com]
  • 1993 0124 – The Washington Post – States Need to Reform Insurance Guaranty Funds, by Jane Bryant Quinn – [link]
    • To reduce the lottery element of settlements, the National Conference of Insurance Legislators (NCOIL) has proposed a single, interstate guaranty fund.
  • 2021 1008 – LC – In Re: Penn Treaty Network America – No. 1 PEN 2009 – Insurance Company in Liquidation Liquidator’s Brief in Support of Exceptions – 456p
  • [Re: State Guaranty Funds]
  • 2021 1008 – LC – In Re: Penn Treaty Network America – No. 1 PEN 2009 – Insurance Company in Liquidation Liquidator’s Brief in Support of Exceptions – 456p
    • 2015 0511 – Proceedings Taken May 11, 2015
    • THE COURT, Mary Hannah Leavitt: What’s going to happen when the guarantee associations take over these policies is that their policyholders, who had nothing to do with this insolvency, are going to make up the difference.
      • Guarantee associations get their money from insurance companies.
        • Insurance companies get their money from their policyholders; so you are shifting the burden from one set of policyholders to another.
      • That’s a policy decision that’s been made by the legislature, but I think there are problems with holding it up as a model of equity and fairness.
        • In a global sense I don’t think it is very fair; but it doesn’t matter because we are not here to talk about the wisdom of the legislature.
      • We are really here to decide what the legislature has decided we must do in this circumstance.  
    • MS. GLAWE: Exactly right.
      • That burden shifting is what the legislature and 52 jurisdictions have decided.
    • THE COURT: That’s right.
    • MS. GLAWE: So that —
    • THE COURT: I wouldn’t hold it up as a wonderful thing.
      • That’s all I’m saying.
      • For every upside there’s a downside on someone.
  • (p588) – Dwight K. Bartlett III (Md.). …told the working group that guaranty associations were developed during a time when “life insurers sold life insurance.”

1995-1, NAIC Proceedings – Guaranty Fund Issues Working Group B of the Insolvency (EX5) Subcommittee – September 11, 1995

  • (p16) – Willis B. Howard, Jr. (NOLHGA – National Organization of Life and Health Insurance Guaranty Associations):
    • I’d like to respond briefly to my honorable friend, Commissioner Bartlett.
    • Dwight, the guarantee association system works, and it works well.
  • Dwight K. Bartlett III (Maryland Insurance Commissioner):
    • Are you going to tell me, Bill, in all honesty that you really believe that the policyholders of Executive Life and Mutual Benefit Life have been well-served?
    • For example, with Mutual Benefit, if you opted out of that rehabilitation plan you get, as I recall, 55 cents on the dollar of your account value.
      • If you opt into the plan, you agreed to subject yourself to a moratorium period, which means you do not get full access to the cash values of your policy until the next century.
    • Are you going to say that’s meaningful coverage for those policyholders?
    • ⇒  I think that’s ridiculous.

1994 – SOA – Valuation Actuary – Symposium Proceedings – Session 1 – Introduction and Overview, Society of Actuaries – 110p

  • **David B. ATKINSON. (Executive Vice President, Reinsurance Group of America (RGA), on behalf of the Reinsurance Association of America (RAA)) –
    • There have been insolvencies. We do have a State guarantee system that backs up
  • Spencer BACHUS (R-AL) –  So there were no losses? 
  • Mr. ATKINSON. Insolvency regulation has worked well. It has been a success.  (p75)

2009 1006 – GOV (House) – Capital Markets Regulatory Reform: Strengthening Investor Protection, Enhancing Oversight of Private Pools of Capital, And Creating a National Insurance Office – [PDF-325p]

  • The thing that concerned us, because we did not have an FDIC behind us, we have a system of guaranty funds in the states, if there were a run on life insurance companies, what would that do to us as an industry?

—  Frank Keating, ACLI, President and CEO

2009 1026 – InsuranceNewsNet – Relieved to Have Survived a Dangerous Year, ACLI Members Look Ahead, By Ron Panko, Senior Associate Editor, Best’s Review – [link]

  • Cardiss Collins (D-IL) – Chair
    • (p107) – Our first witness illustrates the importance of an adequate guaranty fund system.
      • Olga Pegelow’s Executive Life annuity has been reduced 30 percent.
    • (p108) – While insurance companies pay into guaranty funds, it is often the taxpayers who actually pay for insolvencies.
  • Mrs. Olga Pegelow, Policyholder,  Chicago
    • (p111-112) – Since April 1991, I am only receiving 70 percent of my check, while 30 percent is being withheld from each monthly payment and credited to my account with the current interest.
    • But you know, I don’t believe them.
      • Any day I expect to get a notice that Executive Life is bankrupt.
    • I know the State Department of Insurance in Springfield, Ill., is one of the 48 States that belongs to a guaranty fund, but I need my income now, as do all of us in my generation.
    • We elect our Representatives and expect them to do their job to protect us.
      • Where has everybody been since 1984 ?
    • l realize that this will affect all of you, and that is why I am here.
      • I am not only talking for our generation.
      • I am talking for your generation.
    • I just hope that you will be able to insure the future for our young people. 
    • —  Thank you for listening to me.
  • (p118) – Mrs. Olga Pegelow, Policyholder, Chicago  – May I ask a question? — I know there is a guaranty fund in 48 States, but in that guaranty fund, is the money there?
  • Alex MCMILLAN (R-NC).  Well, that is another question.  — In most cases, since it is a guarantee.
  • Mrs. PEGELOW.  But the money is not there. — The money has to first be collected.
  • Mr. McMILLAN. But that means that those who participate in that State in the sale of insurance are obligated to pay into the fund.
  • Mrs. PEGELOW. In other words, all the other insurance companies that are solvent in that State will have to donate the money or pay the money to this guaranty fund;
    • …. it isn’t like the FDIC where the money is there.
  • Mr. McMILLAN. I wish it were.
  • Mrs. PEGELOW. Right. So there is that difference. There is a guaranty fund, but there is no life —
  • Mr. McMILLAN. Those are based on guarantees too. The fact of the matter is —
  • Mrs. PEGELOW. But the Government is behind the FDIC.
  • Mr. McMILLAN. The reason why the taxpayers are having to pay off S&L depositors is because the fund wasn’t adequate to meet the guarantee of the deposits.
  • Mrs. PEGELOW. Correct. And this is the same problem with the insurance money.
    • The money isn’t there.
  • Mr. McMILLAN . You obviously make a very valid point.

1991 0717 and 0724 – GOV (House) – Life Insurance Solvency Issues – Cardiss Collins (D-IL)  —  [BonkNote]

  • Although the guaranty funds are designed so that the industry initially pays for the costs of failed companies, in the event of widespread guaranty fund capacity problems a potential liability for the states may exist.

(p12) – Johnny C. Finch (GAO – Director for Planning and Reporting, General Government Division, General Accounting Office)

  • Who Pays for the Guaranty Association Protection?
    • (p154) – The funds necessary to fulfill an insolvent insurer’s obligations are obtained by assessments levied against other insurance companies doing business in the state.
    • (p155) – State law also provides that an assessment may be waived for an individual insurer if the commissioner of that state determines that payment of the assessment would endanger the insurer’s ability to meet its own obligations.
      • Assessments waived for an individual insurer are paid by the remaining insurers doing business in the state.

—  (p154) – Statement of The American Council of Life Insurance (ACLI),  Marcia Horton – Lincoln National Life Insurance Company

1991 0227, 0507, 0509, 0523 – GOV (House) – Insurance Company Solvency, Cardiss Collins (D-IL)  —  [BonkNote]

  • (p247) – Senator Richard BRYAN (D-NV) – There is generally no public membership?
  • Mr. SARFATY – (NOLHGA) –  Yes, right.
  • (p247) – Senator BRYAN. Now, you talked about the cost.
    • How are the costs passed along to the public?
  • …
  • (p247) – Senator BRYAN.  How are the costs passed on?
    • You talked about the enormous costs that are involved, and very clearly there are substantial costs when you have a big failure like this.
      • How are those passed on?
  • Mr. SARFATY. Well, it does depend on a number of things.
    • It depends on the line of insurance, the type of policy.
    • It depends on whether there is a tax offset provision in the statute for that particular State, and what the characteristics of that statute are, et cetera .
      • In other words, some of the cost is in effect reflected in increased premiums.
    • There are obviously many types of contracts, like life insurance contracts where you cannot raise the premium, the premium is fixed.
      • So that would then be passed on to new policyholders in higher premiums, offset against the tax over an extended period, along the lines of the deductibility of a bank’s FDIC premium.
      • That same general idea, if that is available in that State.
        • Lower interest rates on interest-sensitive products is another way it gets passed on.
        • Lower dividends.
        • So, naturally it spreads through the entire system.
      • There is simply no free money.
  • Senator BRYAN. So, ultimately the public does-
  • Mr. SARFATY. Ultimately the public pays for everything.
  • Senator BRYAN [continuing]. Either in the form of lower dividends, lower interest rates, perhaps higher premium, depending upon the product.
  • Mr. SARFATY. That is correct. That is absolutely right.
  • Senator BRYAN. And ultimately the general fund of those States that permit offsets would have an affect.
  • Mr. SARFATY. That is absolutely right.

1991 0227, 0507, 0509, 0523 – GOV (House) – Insurance Company Solvency, Cardiss Collins (D-IL)  —  [BonkNote]

  • (p29) – Senator Richard SHELBY (R-AL).  Mr. Hunter, do you agree with his statement [Michael McRaith (Illinois Insurance Commissioner / NAIC)]?
    • What is your take on it.
  •  J. Robert HUNTER (CFA).  I didn’t hear him answer the question.
  • Chairman Chris DODD (D-CT). He did–
  • Mr. HUNTER. I don’t think it could handle-I don’t think the guaranty funds could handle it, no.
  • Senator SHELBY. Couldn’t handle it–
  • Mr. HUNTER. That was your question, and I don’t think they–
  • Senator SHELBY. It would be too big for them to handle, would it not?
  • Mr. HUNTER. Of course. Yes.
  • Senator SHELBY. I thought so, too. Thank you.

2009 0317 – GOV (Senate) – Perspectives on Modernizing Insurance Regulation, Chris Dodd (D-CT)  —  [BonkNote]

  • In the U.S., many states have laws that permit insurers to offset a portion of their future premium, income and/or franchise tax liabilities by the amount of the guaranty association assessments they have paid (e.g., 20% over 5 years).
    • This, in turn, reduces the tax bases of those states.  (p4)

2018 0223 – Letter –  ACLI to FSB (Financial Stability Board) – re: Key Attributes Assessment Methodology for the Insurance Sector – 5p

  • In order to protect the policyholders and claimants, the liquidator must turn to the State Guaranty Fund.
    • The Guaranty Fund is a kind of insurance for insurance companies.
  • All insurance companies must contribute money to the Guaranty Fund to protect legitimate-claimants from the danger of not receiving their claims payments.
  • Of course, the payments made by the Guaranty Fund are a cost of companies, and these costs in turn insurance companies to business to insurance are passed on to the consumers of insurance in the form of higher premiums.

—  1988 0809 – NAIC – Testimony – GOV – John Washburn, Illinois Insurance Commission – Comments on H.R. 4923 – 13p

  • In contrast, every state except New York (which has a FDIC like pre-loss insurance fund)17 uses an ex post assessment on healthy insurers to fund any insurable loss not payable by the bankrupt insurer.
  • Each state’s insurance guarantee fund has the power to assess the remaining insurers based on their premium volume.
    • 17 New York’s fund is funded by assessments every year. If the insured losses increase, the New York guarantee fund can increase assessments.
      • However, it does not have statutory access to the state treasury to make up shortfalls. See e.g. The Life Insurance Company Guaranty Corporation of New York Act, 77 N. Y. Comp. Codes R. & Regs.

2010 – AP – The Insurance Industry and Systemic Risk: Evidence and Discussion, by Martin F. Grace – 41p – ssrn.com – link 

  • 1995-1, NAIC Proceedings – Guaranty Fund Issues Working Group B of the Insolvency (EX5) Subcommittee – September 11, 1995
    • (p588) – The first person to testify was Commissioner Dwight K. Bartlett III (Md.).
    • Commissioner Bartlett told the working group that guaranty associations were developed during a time when “life insurers sold life insurance.”
      • He cited the recent rehabilitation of Mutual Benefit Life Insurance Company as an example of the shortcomings of the present guaranty association system.
      • The receiver and guaranty associations did the best job possible within the current framework, but policyholders were forced to bear a disproportionate share of the costs involved, he said.
      • Commissioner Bartlett characterized his proposal as representing a middle ground between the current system and a system like the Federal Deposit Insurance Corporation (FDIC) advocated by some.
    • …
    • (p588) – Len Stillman (Utah) asked why consumers who purchase investment type insurance products should be afforded protection that other investors are not offered.
    • Commissioner Bartlett responded that there is a perception that products offered by life insurers are more secure than other investments.
    • …
    • (p589) – Ms. Pruitt said that some limitation on policy restructuring is fair, but that the working group should note that some insolvencies have been caused by insurers issuing policies containing unrealistic promises and guarantees.

[Words: “run on the bank.”, 1. Moratoria on Surrenders and Withdrawals of Cash Values, ]

  • 1995-2, NAIC Proceedings – Guaranty Fund Issues Working Group
  • (p515) – The working group identified several issues relevant to the charges, including:
    • …are the current limitations on moratoria sufficient?
    • What degree of discretion should the receiver and the supervising court be given to enable them to deal with the unique circumstances of each insolvency?
    • What obligations do guaranty associations have to policyholders in the event a moratorium exceeds six months?
    • Are the hardship criteria in use in most insolvencies adequate to address the needs of policyholders?
    • What factors should be considered by the supervising court with regard to extension of a moratorium?
    • Does the current structure for handling life insurer insolvencies encourage a policyholder “run”?
    • Are the shortcomings of the post insolvency assessment state-based guaranty fund system sufficient to justify serious consideration of alternative systems, or can the problems be fixed? 
  • Policyholder Protection In Insurance Company Failures
    • ATTACHMENT FOUR-C – Statement of The American Council of Life Insurance, ACLI – Before The Guaranty Fund Issues (EX5) Working Group B – September 11, 1995

1995-3, NAIC Proceedings 

  • Further, state guaranty funds protect policyholders from any shortfalls. (p2)

— Vaughan, McCarty, etc., NAIC, Insurance Commissioners

2010 0420 – Letter – NAIC to Senators – re: Restoring American Financial Stability Act of 2010 (RAFSA) – 4p

  • 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

  • With several life insurers in trouble today, the life insurance guaranty associations nationwide could muster under $9 billion if they were called upon.
    • As I put it in my testimony, that would hardly pay the bonuses that these companies are offering.

—  J. Robert Hunter, Director of Insurance, The Consumer Federation of America

2009 0317 – GOV (Senate) – Perspectives on Modernizing Insurance Regulation, Chris Dodd (D-CT)  —  [BonkNote]

  • Despite unfounded concerns from some circles, our state guaranty fund system has robust capacity to resolve insurance company failures and provides an important incentive to the insurance industry to manage risk and promote solvency, as insurers are assessed for the failures of their fellow competitors.
    • Given that policyholder dollars are paid into a proven system of resolution (coupled with appropriate solvency standards), these policyholder dollars should not also be used to pay for the failure of systemically risky entities within the new federal authority.

2010 0603 – Letter – NAIC to GOV (Frank, Bachus, Dodd, Shelby) – re: Conference on Financial Regulatory Reform Legislation – 4p

  • Meanwhile, the state guaranty funds may create the illusion of safety where it does not exist.
    • While the funds might be able to absorb the failure of a single large insurer, it is almost certain that they would not be able to handle the simultaneous failure of several large insurers in a timely fashion.2  (p4)

—  J. Robert Hunter, Director of Insurance – Consumer Federation of America – Testimony – 47p

2009 0317 – GOV (Senate) – Perspectives on Modernizing Insurance Regulation, Chris Dodd (D-CT)  —  [BonkNote]

  • Mark SOUDER (R-IN). If I was trying to go through the different guarantee funds and so on, if insurance companies would start to need to be rescued, do you have a fee much like do we for FDIC–
  • Eric DINALLO (New York State Superintendent of Insurance.)  Yes.
  • Mr. SOUDER. And others like the insurance companies would kick in?
  • Mr. DINALLO. Yes, we have what’s called a guarantee fund.
  • Mr. SOUDER. Do you have right now-……
  • Mr. DINALLO. Yes.

GOV (House) – The Causes and Effects of the AIG Bailout- AIG Bailout Oversight Hearing, Henry Waxman (D-CA) – Panel 1 —  [BonkNote]

  • 2010 0526 – COP – Hearing – TARP and Other Government Assistance for AIG, Congressional Oversight Panel  —  [BonkNote]
    • (p144) – Damon SILVERS (COP Member / policy director for the AFL-CIO):  [continuing]. You-it has been represented to us, and I think you heard some of it this morning, that absent what the Fed did and precisely the way it did it, there would have been a crisis for the insurance subsidiaries and their ability to maintain their business, pay their obligations, and the like, a crisis that’s so serious that it was absolutely necessary to rescue the parent in the manner the parent was rescued in order to avoid such an outcome.
      • I think there is a kind of implicit analysis made by the Federal Reserve and the Treasury in saying so, that whatever problems might have arisen in the insured subsidiaries, they would have been beyond the ability of the state insurance regulation and guarantee system to manage.
      • What is your response to both those propositions and specifically what was the view of the New York State Insurance regulators and the-I forget the term of art now, but there’s a sort of coordinating body of state insurance regulators. 
      • What was your view during the so-called Lehman weekend around these questions?
    • Michael MORIARTY (New York State Insurance Department, Deputy Superintendent)
      • Sure. I’d like to bifurcate my answer into two parts.
        • We do not believe that the existing policyholders of the AIG property and casualty companies for sure or even the life insurance companies would have suffered any losses should there-would there have been a bankruptcy of the AIG holding company system.
        • State insurance laws through the McCarran-Ferguson Act clearly give the states the authority to regulate insurance companies and to rehabilitate and liquidate them, which is a different process from a bankruptcy.
        • So we would maintain that the existing policyholders would have been made whole, even if there was a bankruptcy.
        • The life insurance subsidiaries would have suffered significant losses and the cushion, which we call surplus, which is effectively capital between assets and liabilities, would have taken a severe hit, but we still think it would have been positive.
      • Now, when we look at AIG as a going concern that would have been a problem
  • In the early 1990s, there were a number of large insolvencies.
  • …
  • This led to creative solutions to some of the major insolvencies, such as establishing the Guaranty Reassurance Corporation, which was formed to take over the assets and liabilities of the insolvent Guaranty Security Life.
    • In this plan, there was a 25% moratorium surrender charge assessed against policyholders who wished to surrender.
    • These graded off over a five-year period.
  • The funding of the guaranty associations’ obligations for Guaranty Re was also spread over a five-year period.
    • They funded them, in effect, with notes at the beginning of the 1993 Reassurance Plan.
  • As many of you know, the funding for Executive Life was also spread out over a number of years.
  • Who bears the cost?
  • …
  • To determine the cost of recent insolvencies, and how long has it taken to resolve them, let’s define a major insolvency as one that has policyholder obligations of more than $100 million.
  • There have been 14 of these in the last 10 years, including three big ones:
    1. Confederation Life,
    2. Executive Life, and
    3. Mutual Benefit.
  • Total policyholder obligations were $28 billion as of the date of the liquidation order.

—  Willis B. Howard Jr., NOLHGA – National Organization of Life and Health Insurance Guaranty Associations

1998 – SOA – Once in a Hundred Years, Society of Actuaries – 22p

Liquidity vs Solvency

Liquidity is a separate problem from solvency, but it can be equally serious.

1992 01 – SOA – The Actuary – A Possible Source of Low-cost Liquidity, by Irwin T. Vanderhoof, Society of Actuaries (p3) – 20p

  • 2009 0305 – GOV (House) – Perspectives on Systemic Risk
    • 4:30 – Terri Vaughan – AIG wasn’t an Insurance Company
    • 42:00 – Melissa Bean/Terri Vaughan – Solvent/ Insolvent. 

Advice

  • Incidental Advice
  • Thomas v. Metropolitan Life Insurance Company, Case No …Aug 31, 2009 – This policy was a variable universal life insurance policy. The Third … advice “solely incidental to” the conduct of business as a broker or dealer.
  • … under the IAA if the advice they give is “solely incidental to” their broker activities and they receive “no special compensation” …
2020 – LR – Thomas v. Metropolitan Life Insurance Co.: Semantics, Fiduciary Duty, and an Outdated Distinction, by Jeremy Liles – 21p

Run

  • Run – Index
  • Run-off
  • Firesale
  • 2015 – FRB – Self-Fulfilling Runs: Evidence from the US Life Insurance Industry – 52p
  • In May 1991, one month after seizing Executive Life, California regulators seized First Capital Life (FCLIC).
  • Both insurers were Drexel clients with large junk bond holdings, and both had experienced ‘bank runs’.
  • FCLIC’s run followed regulators’ televised comments that its poor condition necessitated a substantial cash infusion.

1995 – AP – Perceptions and the Politics of Finance: Junk Bonds and the Regulatory Seizure of First Capital Life, by Harry DeAngelo, Linda DeAngelo, and Stuart C. Gilson – 37p

  • Life insurers, whose liabilities are generally more liquid than their assets, are particularly vulnerable to runs by policyholders.  (page x)

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

  • A major problem that must be overcome with such monitoring systems is that of avoiding the self-fulfilling prophecy.
  • A monitoring system that identifies high-risk behavior can actually trigger the bad luck required to actually send a company under.
    • For instance, a system that identifies a life insurer as having high potential for capital losses in the event that it experiences a policyholder run may actually incite policyholders to pull their money out of the company, thus triggering a financial meltdown that would not have otherwise occurred.
  •  

1995 – JIR / NAIC – Solvency Monitoring in the Twenty-First Century, by Robert W. Klein and Michael M. Barth – 47p

  • (p29) – Dennis ROSS (R-FL).  …has there ever been a run on an insurance company in the history of the United States?
  • Doug HOLTZ-EAKIN (President, American Action Forum)
    • No.
    • One of the mysteries of this designation has been ignoring the history of successful regulation of insurance companies…

2017 0328 – GOV (House) – The Arbitrary and Inconsistent Non-Bank SIFI Designation Process, Ann Wagner (R-MO)  —  [BonkNote]

  • The only delay that occurred, there was a 10-day delay between the seizure of the parent company in California and the New York company.
  • There was a run on the bank, quite extensive run of the bank in that 10-day period in New York, but the company was able to withstand that.
  • Ultimately, the company was taken over by MetLife and the policyholders in New York were made whole. (p48)

—  Statements of James P. Corcoran, Former Insurance Commissioner, State of New York

2002 1010 – GOV (House) – The Collapse of Executive Life Insurance Co. and Its Impact on Policyholders [PDF-277p,

  • The disaster we fear is the looming crisis of confidence, of lost credibility, of spreading fear among the public and, ultimately, of a “run on the bank” as policyholders pull their money out of the insurance industry. –  (p160)

—  Prepared Statement: Martin D. Weiss, President, Weiss Research, Inc.

1991 0227, 0507, 0509 and 0523 – GOV (House) – Insurance Company Solvency, (CSPAN) Insurance Company Insolvencies, Cardiss Collins (D-IL)  —  [BonkNote]

  • (p10) – Under the pressure of low interest rates in China, along with the regulation of government, China’s insurance companies will face a dilemma of both maturity payment and surrender value.
  • It is necessary to prevent a run event; otherwise, insurance companies’ liquidity will be significantly affected, which will lead to fracturing of company funds in a severe case or even a financial crisis.

2020 02 – SOA – Systemic Risk in China’s Insurance Industry, Society of Actuaries – 55p

  • Furthermore, policyholders have a contractual right to borrow on their policies and repay the resulting loans at their conveneince, options they are utilizing on an increasing scale, particularly when funds become unavailable through normal channels.

—  Statement of Orson H. Hart, Vice President and Director of Economic Research, New York Life Insurance Co. – (p174)

1968 0508/0509/0515/0516 – GOV (JEC) – Standards For Guiding Monetary Action – [PDF-319p]

  • 672 In testimony to Congress in 1992 regarding the findings of a GAO review, the Assistant Comptroller General (Richard L. Fogel) stated,
    • “According to regulators, the April 1991 takeovers of Executive Life and Executive Life of New York spurred policyholder runs on junk bond laden First Capital and Fidelity Bankers.” (p139)

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

2015 0930 – MetLife v FSOC – 15-CV-45 – Documents 85-2 and 85-3 – 387p

  • 2011 1116 – GOV (House) – Insurance Oversight and Legislative Proposals – [PDF-131p] 
  • (p24-25) – Steve STIVERS (R-OH).  I have a quick question for Mr. Monroe and Mr. Lanza.
    • In the scenario that Mr. Schwarcz gave earlier about a run on life insurance companies, wouldn’t the State regulatory scheme under McCarran-Ferguson have to essentially completely collapse and fail and the State regulators not do their jobs?
  • Michael LANZA. (Executive Vice President and General Counsel, Selective Insurance Group, Inc., on behalf of the Property Casualty Insurers Association of America (PCI)
    • I believe so.
  • Steve MONROE. (Chief Compliance Officer, U.S. & Canada, for Marsh, Inc., on behalf of the Council of Insurance Agents & Brokers)
    • I would have to agree with that.
    • I can’t imagine a scenario where it would be a contagion from life insurance company to life insurance company.
    • In fact, given the competitiveness of the insurance market, I think if there was a run on one, others would quickly step in. 
  • The commissioner of insurance in California, Mr. Garamendi, tried to get capital contributions for us from American Express and Shearson, and he coined the now famous phrase “if membership has its privileges, ownership has its responsibilities.”
  • That, unfortunately, didn’t shake American Express very much and it decided to ride it out.
  • To give you some numbers, our average weekly surrenders:
    • in January 1991 were $17.2 million.
    • In February, surrenders averaged $22 million;
    • in March, $15 million;
    • and in April, $33 million.
    • The first two weeks of May totaled $290.7 million per week.
  • When a run starts, it can leap up rather geometrically.
  • I don’t think this is news, but we also asked for a cease-and-desist order, and the commissioner graciously agreed.
    • On May 10, 1991, we were issued a cease-and desist order, which enabled us to stop the policyholder run.

—  Fred Buck, President of First Capital Life and has held that position for about eight years, as far back as when it was called E. F. Hutton Life.

1992 – SOA – Companies on the Edge, Society of Actuaries – 20p

  • ACLI – American Council of Life Insurers
    • 2009 1026 – InsuranceNewsNet – Relieved to Have Survived a Dangerous Year, ACLI Members Look Ahead, By Ron Panko, senior associate editor, Best’s Review – [link]
      • The thing that concerned us, because we did not have an FDIC behind us, we have a system of guaranty funds in the states, if there were a run on life insurance companies, what would that do to us as an industry? – —  Frank Keating, ACLI, president and CEO
    • 2016 0831 – ACLI – Life Insurers Do Not Pose a Systemic Risk to the Nation’s Economy, By Dirk Kempthorne, President and Chief Executive Officer of the ACLI – [link]
      • For life insurers, the risk of a bank-like “run” resulting from loss of consumer confidence is virtually non-existent.
  • There are rumors, concerns, higher interest rates, and rising stock markets.
    • They don’t draw our money away gradually, they draw it away in big hunks.
    • That’s what brought Continental Bank down.
    • That’s what drove Executive Life down.
    • Once large numbers of policyholders perceive a problem, they begin yanking their money.
  • The life insurance company has typically invested this in long-term investments.
    • Depending on interest rates when the rumor occurs, or when capital flight occurs, this can cause the assets to be insufficient.
    • I believe that the life insurance industry faces major potential failures because of its change in emphasis on what it is selling.
  • Are the state funds adequate to deal with this?
  • I believe the answer to that is no. 

—  James Kenney

1992 – SOA – Is there Life After Executive Life? Retirement Plan Participants and the Guarantees of Insurance Companies, Society of Actuaries – 22p

  • The recent crisis, however, has brought a different sort of run on financial institutions, namely the withdrawal of short term credit and demand from other counterparties for collateral payments.
  • Such a “run” brought AIG down and other insurers might be vulnerable, although none have failed since AIG.

—   Baird Webel, Specialist in Financial Economics (Congressional Research Service

2009 0728 – GOV (Senate) – Regulatory Modernization: Perspectives on Insurance – [PDF-125p,

  • While insurers would benefit from an increase in interest rates through improved investment returns, a sudden, significant rate increase could present threats.
    • A sudden increase in general interest rate levels would increase unrealized losses in insurer fixed income portfolios and, at the same time, could prompt policyholders to surrender contracts for higher yield elsewhere.
    • In such a circumstance, insurers could be forced to liquidate fixed income investments at a loss in order to fund contract surrender payments.

2013 – FIO – Annual Report on the Insurance Industry – 53p

  • <Run vs Run-off>
  • (p98) – Exhibit 57: Equitable Life lapse rates 2000-2004
    • Lapse rates multiplied across all product lines between 2000 and 2004.
    • However, with maximum lapse rates between 10 percent and 15 percent it would be inappropriate to talk about an “insurance run”.
  • (p99) – Equitable Life has been in run-off for over 9 years, an orderly run-off of its portfolio.
    • There has been significant transfer of policies to other insurance companies and the impact on national pensioner income and GDP growth is marginal.

2010 – Geneva – Systemic Risk in Insurance-An analysis of insurance and financial stability – 129p

  • As interest rates soared in the mid-1970’s, policyholders cashed in their conventional whole-life policies – which combine insurance coverage with savings – at a record rate, in order to put the cash in higher-paying investments or savings vehicles.
  • ”People started to question the whole-life concept when they had a return of 4 percent or 5 percent and savings accounts were earning interest in the double digits,” said Franklin Maisano, the executive vice president of the Equitable Life Assurance Society of America.

1985 1117 – NYT – Insurance Packaged For Investors – [link]

  • What do we have?
    • In some ways, it is an industry victory; nonguaranteed elements are still allowed in illustrations.
      • I recall that at one point they were really talking about eliminating all nonguaranteed elements from illustrations.
    • I am on this panel principally as Chairman of the ACLI Subcommittee on Cost Comparisons.
    • Much of our work has dealt with the issue of illustrating Nonguaranteed Elements.
    • As a backdrop, I want to quote from a January 1988 Financial Planning article.
      • The article is entitled “Future Shock” by Harry Lew with the sub-heading:
        • “What will happen when a generation of insurance buyers begins comparing unrealistic illustrations with the actual performance of their policies?
        • Industry leaders would prefer not to find out.”
    • The article goes on to say that “… veterans of the insurance industry are quietly expressing concern about the way illustrations are being used in today’s market.”
    • Often the numbers on the computer printout contain nonguaranteed projections on how the policy will perform in future years and tend to convince the client he is getting a better deal than he really is.
    • Some have gone so far as to call even well-designed illustrations the industry’s “great lie.”
    • Agents who continue to give much credence to nonguaranteed projections may be setting themselves up for a fall as policies fail to live up to the expectations of a whole generation of insurance customers.

—  Larry R. Robinson, ACLI

1988 – SOA – Actuarial Opinion on Non-Guaranteed Elements, Society of Actuaries – 12p

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>