SAP – Statutory Accounting Principles

  • SAP, SSAP
  • 1987 – SOA – Valuation Actuary Handbook – Chapter I – Insurance Company Statutory Valuation, Society of Actuaries – 34p
  • (p7) – Eric Dinallo:  I decided that I had enough information, and enough belief in the statutory accounting, which we can talk about. Which is really part of the story. That I was going to go out there and make statements about my confidence in the insurance companies of AIG.
    • Because I did believe that on a statutory accounting basis, they had more than enough assets to match their long-term liabilities on a statutory accounting basis. Not mark to market. Which Geithner to this day …
  • YPFS: Can you talk a little bit more about that?
    • Dinallo: When Geithner heard this, I made this joke. I don’t know if I’ve been quoted.
      • I think he thought I was explaining the Mayan calendar to him. It was so alien and so weird.
      • But basically, life insurance companies have long-term liabilities, and they match it with long-term assets that are going to perform by maturing 20 years from now.
      • That’s why so much of the reserves are put towards basically debt, Treasuries, etc., that are highly rated.
        • So that they will almost certainly, hopefully, certainly perform.
        • Which means mature. You’re going to get the coupon along the way, albeit a small yield.
        • The volatility before maturation over the 20 years does not count.
      • This is the biggest debate in insurance right now.
        • Between Europe, the feds, and the United States.
          • That the inter-period where there’s volatility, and this is what I mean by, back with Shelby.
          • They were like, “Oh my god, they’re insolvent.”
          • I’m like, “They’re not insolvent. They may be, on some reporting basis, marginally insolvent.”

2021 0225 – Yale – YPFS Lessons Learned Oral History Project: An Interview with Eric Dinallo, Former New York State Superintendent of Insurance (2007-2009)  —  [BonkNote] 

  • The NYDFS recognizes only statutory accounting practices (“SAP”) prescribed or permitted by the State of New York for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under New York Insurance Law.
  • The National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures Manual (“NAIC SAP”) has been adopted as a component of prescribed or permitted practices by the State of New York.
  • The State of New York has the right to permit other specific practices that deviate from prescribed practices. (p32/19)

2020 – AIG – Annual Statement for the Year 2020 OF THE United States Life Insurance Company in the City of New York – 460p

  • SSAP – Statement of Statutory Accounting Principles
    • 51 – Statement of Statutory Accounting Principles No. 51 – Life Contracts
    • Statutory Issue Paper No. 56 – Universal Life-Type Contracts, Policyholder Dividends, and Coupons – STATUS – Finalized March 16, 1998 – 12p
    • Original SSAP: SSAP No. 51; Current Authoritative Guidance: SSAP No. 51R
      • Flexible Premium Universal Life-Type Contracts
        • Alternative minimum reserves shall be required, if applicable, for flexible premium universal life-type contracts if the guaranteed maturity premium is less than the valuation net premium.
    • SSAP 86 – Accounting for Derivative Instruments and Hedging, Income Generation, and Replication (Synthetic Asset) Transactions, Supersedes SSAP No. 31 – 41p
      • SSAP No. 86-Derivatives Ref #2021-20 – Measurement of Excluded Components – 10p
  • 2021 0225 – YPFS Lessons Learned Oral History Project: An Interview with Eric Dinallo – 19p
    • Dinallo:  I decided that I had enough information, and enough belief in the statutory accounting, which we can talk about. Which is really part of the story. That I was going to go out there and make statements about my confidence in the insurance companies of AIG.
      • Because I did believe that on a statutory accounting basis, they had more than enough assets to match their long-term liabilities on a statutory accounting basis. Not mark to market. Which Geithner to this day …
    • YPFS: Can you talk a little bit more about that?
    • Dinallo: When Geithner heard this, I made this joke. I don’t know if I’ve been quoted.
      • I think he thought I was explaining the Mayan calendar to him. It was so alien and so weird.
      • But basically, life insurance companies have long-term liabilities, and they match it with long-term assets that are going to perform by maturing 20 years from now.
      • That’s why so much of the reserves are put towards basically debt, Treasuries, etc., that are highly rated.
        • So that they will almost certainly, hopefully, certainly perform.
        • Which means mature. You’re going to get the coupon along the way, albeit a small yield.
        • The volatility before maturation over the 20 years does not count.
      • This is the biggest debate in insurance right now.
        • Between Europe, the feds, and the United States.
          • That the inter-period where there’s volatility, and this is what I mean by, back with Shelby.
          • They were like, “Oh my god, they’re insolvent.”
          • I’m like, “They’re not insolvent.
            • They may be, on some reporting basis, marginally insolvent.”

Distribution

  • The unbundling of manufacturing and distribution:
    • The modern life insurance industry started with bundled manufacturing and distribution, the latter being characterized by controlled, exclusively aligned career sales forces.
  • We then witnessed three sequential shifts:
    1. The disenfranchisement of the industry’s career sales forces
    2. Re-aggregation of individuals previously comprising those sales forces into stand-alone marketing entities comprised of independent producers (called producer groups, marketing companies, etc.)
    3. Most recently, initial signs of reacquisition of those marketing entities by the life insurance industry as well as by banks and others

1999 – SOA – Service or commodity? Life insurers being forced to choose in an uncertain time., by Sam Turner, Society of Actuaries – 3p

  • B. Marketing and Operations
  • 1. Direct Marketing
  • a. Mail ,
    • b. Telephone
    • c. Fax
    • d. Seminars ‘
    • e. Television and Radio
    • f. Computer
  • 2. Agents – Licensed and Unlicensed
  • 3. Brokers
  • 4. Managing General Agents (MGA)
  • 5. Third Party Administrators (TPAs)
  • 6. Associations (profit and non-profit)
  • 7. Pyramids
  • 8. Multi Jurisdictional Operations (Operate in more than one state or country, making it difficult to investigate, regulate, prosecute or sue to protect insureds)

Unauthorized Entities Manual For State Department of Insurance – ATTACHMENT TWO-D1

1994-4 – NAIC Proceedings – Executive Committee

  • 1983 – SOA – Distribution Systems, Society of Actuaries – 12p
    • Amway, Avon, Direct Marketing
  • 1984 – SOA – Distribution Systems for Investment-oriented Products, Society of Actuaries – 22p
  • 2003 – SOA – Variable Life-Product and Distribution Issues, Society of Actuaries – 28p
  • 2020 – SOA – Marketing and Distribution: Who Sells and Distributes, Society of Actuaries – 4p
    • [FMO, IMO, MGA, GA]

Solvency II

  • Solvency II came into effect on 1 January 2016
  • Europa – Risk management and supervision of insurance companies (Solvency 2) – [link]
  • Bank of England – Solvency II- [link]
  • 2006 – JIR / NAIC – Modernizing Insurance Solvency Regulation: Evidence from the UK – 21p
  • With respect to insurance companies, Douglas et al. (2017) study the impact of Solvency II regulation on the way that UK life insurers adjust their portfolio in periods of distress.  (p4)

2022 02 – BOE – Modelling fire sale contagion across banks and non-banks, Staff Working Paper No. 878 – 37p

Douglas, G., Noss, J., and Vause, N. (2017). The impact of solvency ii regulations on life insurers’ investment behaviour. Bank of England Staff Working Paper No. 664.

  • (p42) – 137. Solvency II is the EU’s insurance markets directive, designed to unify insurance regulation and reporting across each Member State.
    • The UK is still applying regulations derived from Solvency II, the European framework for insurance regulation.182
    • It was criticised for creating large compliance costs for insurance companies.
    • The UK insurance sector has consistently lobbied for changes in how Solvency II is designed, and how its regulatory implementation is interpreted.
    • The Treasury and regulators have already begun work on reforms to the onshored UK insurance regulation. The European Union itself has
      begun a process of reforming its own Solvency II directive.183

2022 – House of Commons – Treasury Committee – Future of financial services regulation, First Report of Session 2022-23 – 68p

Deceptive

—  Allen D. Booth, a consultant in the Milwaukee office of Towers, Perrin, Forster and Crosby

1982 – SOA – Universal Life Update, Society of Actuaries (rsa82v8n34) – 26p

  • In guarding the public against insolvent insurance companies state supervision has been eminently successful.
  • In protecting the people against frauds, impositions and abuses by solvent companies it has been only partially successful.  (p89)

—  “Deceptive Insurance Methods –The Cure”, Speaker: Mr. E. E. Rittenhouse (Colorado, Insurance Commissioner of Colorado)

1907-0, NAIC Proceedings

Capital Standards

  • Spencer BACHUS (R-AL) – I believe to protect those that are relying on the bond insurers’ capitalization, I believe the superintendent of the
    New York Insurance Department could have raised the capital standards.
  • Governor SPITZER. Sir, I think you misapprehend-
  • Spencer BACHUS (R-AL) I believe there was inadequate capitalization

2008 0214 – GOV (House) – The State of the Bond Insurance Industry, Paul Kanjorski (D-PA)  —  [BonkNote]

  • Moreover, given the long-term nature of life insurers’ obligations to their policy holders, they are exposed to substantial risk based on market fluctuations and turns in the economic cycle.
  • Thus, it could be easily argued that they need more, not less, capital than banks based on the long tail of their liability structure.  (p5)

2014 0310 – Sheila C. Bair to Sherrod Brown – 6p

  • In contrast, many of the investment-oriented products marketed in the last decade have shorter duration and require greater liquidity than was needed in earlier …

1992 – World Bank – The Life Insurance Industry in the United States:  An Analysis of Economic and Regulatory Issues, Kenneth M. Wright – 54p

  • 2010 1230 – Federal Register – Risk-Based Capital Standards: Advanced Capital Adequacy Framework-Basel II; Establishment of a Risk-Based Capital Floor –
    • Comments – 5
      1. The European Banking Federation
      2.  
  • 2011 0628 – Risk-Based Capital Standards: Advanced Capital Adequacy Framework-Basel II; Establishment of a Risk-Based Capital Floor A Rule by the Comptroller of the Currency, the Federal Reserve System, and the Federal Deposit Insurance Corporation on 06/28/2011
    • Effective Date: 07/28/2011
  • 2013 1212 – GOV (House) – International Finance System, Part 1 (CSPAN)
    • [PDF- , VIDEO-CSPAN]
    • 01:10:00 – Neugebauer / Lew – FIO, Late Reports, McRaith, FSOC, Banking vs Insurance, US v Europe, Complicated issue, states, feds, opening the conversation, G-20, Capital Standards
    • 01:19:00 – Bill Foster (D-IL) – Banking Capital Standards to Insurance, FSOC
  • AAA – American Academy of Actuaries
  • ACLI – American Council of Life Insurers
  • DOTT – Department of the Treasury
    • FIO – Federal Insurance Office, FACI – Federal Advisory Committee on Insurance 
      • 2020 1008 – FIO ICS Study
        • 2020 1008 – FIO – Notice – Federal Insurance Office Study on the Insurance Capital Standard Posted by the Department of the Treasury – [link-Federal Register]
        • 2020 1008 – FIO – Federal Insurance Office Study on the Insurance Capital Standard Posted by the Department of the Treasury on Oct 8, 2020 – [link-Regulation.gov]
          • 14 Comments
        • 2021 0210 – FIO/FACI – FACI International Subcommittee Perspectives on the Request for Information (RFI) on a FIO Study of the ICS – 22p
  • GAO – Government Accountability Office
    • 2015 0625 – GAO – International Insurance Capital Standards: Collaboration among U.S. Stakeholders Has Improved but Could Be Enhanced 
  • FASB – Financial Accounting Standards Board
  • Federal Reserve
    • BBA – Building Block Approach
  • IAIS  – International Association of Insurance Supervisors 
    • ICS – Insurance Capital Standards
    • MAV – Market Adjusted Valuation
  • NAIC / States
  • 2010 – IASB/FASB – Project: Insurance Contracts. Topic: Universal life insurance and other account-driven contracts – 13p
  • 2020 1203 – EIOPA – Report on Long-term Guarantees Measures and Measures on Equity Risk 2020 – 147p
  • acceleration clause
  • Spread stresses – NDSR
  • Prudential – This non-economic volatility is “valuation noise” resulting purely from the MAV framework rather than being indicative of a relevant risk to an insurer.
  • Surplus Notes
  • Accordingly, Team USA and other interested jurisdictions continue to build on our work on the Group Capital Calculation and Building Block Approach to develop what the IAIS terms the Aggregation Method which could be considered an equivalent implementation of a group capital rule for large, internationally active insurers in the United States.

2021 0526 – FRB to NAIC – Randal K. Quarles, Vice Chair for Supervision Board of Governors of the Federal Reserve System to National Association of Insurance Commissioners International Insurance Forum – 9p

  • 2022 03 – NAIC – Press Release – NAIC Shares Letters with Congress Regarding S&P Global’s Proposed Capital Model – [link]
  • 2019 1024 – Federal Register – Vol. 84, No. 206 / Thursday, October 24, 2019 / Proposed Rules – 62p
    • Insurers match life insurance and annuity long-duration products with a long-term investment strategy. (p6/57245)
    • In 2008, nearly half the largest life insurance groups experienced losses that were above their authorized control level regulatory capital requirement. (p57/57296 )
  • “SECTION 171” RISK-BASED CAPITAL REQUIREMENT 
  • capital calculation (GCC) – (NAIC),
  • Aggregation Method (AM) being developed at the International Association of Insurance Supervisors (IAIS) as a potential alternative to the insurance capital standard (ICS).
  • SEC – Investment Company Liquidity Risk Management Programs – Final Rule – 459p
    • new rule 22e-4

Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action (FRS Docket No. 1438 & RIN 7100-AD-86); Regulatory Capital Rules: Standardized Approach for Risk-weighted Assets; Market Discipline and Disclosure Requirements (FRS Docket No. 1438 & RIN 7100-AD-86); Advanced Approaches Riskbased Capital Rule; Market Risk Capital Rule (FRS Docket No. 1438 & RIN 7100-AD-86)

  • 2012 1022 – Chief Financial Officers of a coalition of domestic insurance companies (the Coalition), regulations.gov – 7p
  • IAA Risk Book – Chapter 12 – Capital – A Regulatory Management Tool, Dave Sandberg – 43p

OFC – Optional Federal Charter

  • “OFC proposal”
  • 2002 0618 – ThinkAdvisor – ACLI: Federal Oversight Would Be Less Confusing, By Steven Brostoff – [link]
    • ACLI – survey … commissioned by ACLI and conducted by Matthew Greenwald & Associates – <WishList>
    • CFA – August 2000 study by the Consumer Federation of America – <WishList>
    • ACLI Chairman Joseph Gasper recently testified on Capitol Hill that the current state-based regulatory system hurts insurers’ efforts to compete with banks and securities firms and may also weaken protection for consumers.
      • Insurance Regulation and Competition for the 21st Century, Michael Oxley (R-OH)
        • [PDF-474p, 0604-VIDEO-CSPAN] – 0611 and 0618 – <WishList. – mp3, mp4> – R
        • 0611 – ACLI – Joseph J. Gasper, Chairman, ACLI, President & Chief Operating Officer,Nationwide Financial Services, Inc – 18p
      • 2007 1214 – CRS – Insurance Regulation: Optional Federal Charter Legislation – 16p
  • 2004 – AP – Consumer Ramifications of an Optional Federal Charter for Life Insurers, Sheila Bair – 273p
    • Chart – p262
  • 2008 – SOA – Optional Federal Charter (OFC)-Another Acronym, Another Concern, By Norman E. HIll, stn-2008-iss31-hill-01 – Society of Actuaries – 5p
  • H.R. 3200, introduced last July by Representatives Melissa Bean and Ed Royce, is a strong consumer protection bill, which focuses on a centralized system that emphasizes safety, soundness, and consistency of regulation.
  • And as Representative Bean highlighted, these protections come without sacrificing State premium taxes.
  • We also strongly support the Treasury’s view that an optional Federal charter would play an important role in the new world of integrated financial markets, and would address the burdens imposed by the State system on insurers and consumers alike.
  • Insurers, banks, and capital markets investors are now offering products that may be substitutes for each other…

— ACLI – Alastair Shore (CUNA) on Behalf of the American Council Of Life Insurers 

2008 0416 – GOV (House) – Examining Proposals on Insurance Regulatory Reform, Paul Kanjorski (D-PA) – [PDF-188p, VIDEO-?] 

  • That is why we strongly support the comprehensive approach to improving insurance regulation reflected in the legislation that Senators Sununu and Johnson have proposed.
    • Having an optional Federal charter operating alongside a gradually improving State system of regulation seems to us to be the right way to go.
    • And it parallels the successful dual chartering mechanism we see in the commercial banking sector.

—  ACLI – John D. Johns,  on behalf of the American Council of Life Insurers 

2006 0711 – GOV (Senate) – Insurance Regulation Reform, Richard Shelby (R-AL) – [PDF-152p, VIDEO-Senate-error] 

  • If we want to address the problems in the insurance industry, I strongly urge that a federally chartered insurance corporation be set up, along the same lines of the FDIC, to monitor this industry.
  • Indeed, if you think that the property/casualty crisis is difficult, I can assure you that the same crisis will come home, in spades, with the life insurance industry in approximately three to five years and it is not too late to address that crisis. (p761)

—  Michael A. Hatch, Commissioner, Department of Commerce, State of Minnesota,

1986 0225 – Letter to Senator Dale Bumpers (D-AR), Includes Letter to Governor Perpich, From Michael A. Hatch Commissioner, re: Insurance Unavailability Crisis- (p761-770)

1986 Part 2 0220 and 0221 – GOV (Senate) – The Cost and Availability of Liability Insurance for Small Business, Parts 1, 2, and 3, Jim Sasser (D-TN) – [PDF-1163p-GooglePlay-link]

  • While I applaud the life insurance industry for attempting to make their case of the need for a dual system of insurance regulation in their bid to compete with federally regulated security products, I still have many concerns regarding various proposals for an optional Federal insurance charter.
    • In particular, proposals which include the property and casualty line of insurance as a part of the Federal charter.
  • As you may know, Alabama has a $1.3 billion per year insurance business, resulting in $240 million of insurance premium taxes every year.
    • A proposed optional Federal insurance charter not only could reduce this important source of State revenue in an era of tight State budgets and dwindling State income taxes but will also threaten the ability for States to adequately fund their State insurance departments. (p6)

— Spencer Bachus, (R-AL)

2003 1105 – GOV (House) – Reforming Insurance Regulation: Making the Marketplace More Competitive for Consumers, Richard H. Baker (R-LA) – [PDF-200p, VIDEO-?]

  • Senator JOHNSON. And Dr. Harrington, some of your publications in the early 1990s, you concluded that Federal regulation of insurance and the possible optional Federal charter would not have been an appropriate response and not justified at that time.
    • But since then, you have concluded that States’ regulation of rates, rate classification and policy forms remain dysfunctional in many States and with no obvious end in sight.
    • Can you elaborate just a bit on what has led you to decide that now is the time to start considering Federal regulation or possibly an optional Federal charter?
    • Were there situations and specific organizations and States that led you to the conclusion that States can no longer do an adequate job of insurance regulation.

006 0718 – GOV (Senate) – Perspectives on Insurance Regulation, Wayne Allard (R-CO)  —  [BonkNote]

  • The ACLI strongly supports the creation of an optional Federal charter, or OFC, for life insurers.
  • That is why we strongly support Senate bill 40, the National Insurance Act, which was introduced by Senators Johnson and Sununu and which would establish the Office of National Insurance within the Treasury Department to issue charters and oversee and regulate Federal insurers.

—  ACLI – John Pearson, Chairman, President & Chief Executive Officer, Baltimore Life Insurance Company, on Behalf of the American Council of Life Insurers

2008 0729 – GOV (Senate) – The State of the Insurance Industry: Examining the Current Regulatory and Oversight Structure, Chris Dodd (D-CT) – [PDF-472p, VIDEO-Senate-Error]

  • As you know, AIA strongly advocates the creation of an optional federal charter (OFC) for insurers.

2008 0616 – H.R. 5840, The Insurance Information Act of 2008 – Letter – AIA – 7p

  • The multi-State nature of a NAILBA agency forces us to be keenly aware of the pitfalls of the current system. In my written testimony,
    • I provided detailed examples of the maze that is the current State-based system.
  • In closing, NAILBA believes an optional Federal charter approach would provide consumers with increased access to competitive and market-reflected products more quickly.
  • The reduction of costs associated with working with 1 regulator, not 50, would be reflected in the pricing of products.  (p17)

2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform, Paul Kanjorski (D-PA)  —  [BonkNote]

Policyholder Protection

  • The fundamental tenet of our U.S. system is to protect policyholders by ensuring the solvency of the insurer and its ability to pay insurance claims. (p36)

—  Prepared Statement of Kevin M. McCarty, Commissioner Florida Office of Insurance Regulation – On Behalf of the National Association of Insurance 

The State of the Insurance Industry and Insurance Regulation

  • Robert Wilcox – Expert Witness – Thao v Midland
  • vs. Consumer Education
  • Guaranty Associations
  • 2013 10 – IAIS – ISSUES PAPER ON POLICYHOLDER PROTECTION SCHEMES – 42p
  • Solvency
  • 2017 PRA Youtube – son with cancer

VAR – Value at Risk

  • Summary: Value-at-risk has received a great deal of attention in recent years as an effective risk management concept.
  • This session examines the basics, including:
    • What is it and how does it work?
    • How much and how is it being used?
    • What are the pros and cons relative to other risk management techniques?
    • What are the likely implications for pension plan funding and investments?

1998 – SOA – Introduction To Value-At-Risk, Society of Actuaries – 26p

  • 1998 – SOA – Subjective Value at Risk, by Glyn Holton, rrn9810 – Society of Actuaries – 32p

Universal Life Insurance does not “Fit” into the existing regulatory framework

  • This regulation is designed to address those areas where universal life insurance does not “fit” into the existing regulatory framework.  (p1)

NAIC – Universal Life Insurance Model Regulation – MDL-585 – 22p

  • New York reports that they have determined that Section 216 and 208, (a) and (b), and perhaps other sections of their law, prohibit the issuance of universal life type products.
  • Their law is currently being amended to permit such policies.

1982-2, NAIC Proceedings

  • Traditional plans are fairly simple in their structure.   
    • One can look at their premiums, their cash values and their dividends, if there happen to be any. 
  • Universal life presents something of a paradox.

—  Ben H. Mitchell, [Bonk: a consulting actuary with Tillinghast in Atlanta – Years-?]

1981 – SOA – Universal Life (RSA81V7N412), Moderator: Samuel H. Turner, Society of Actuaries – 16p 

  • In December of 1983, the National Association of Insurance Commissioners adopted the Universal Life Insurance Model Regulation that sets forth minimum reserve standards for universal life policies.
    • These standards represent an effort to fit universal life into traditional valuation methodologies. 
    • An assumption was made regarding future premium payments, and a factor was developed to adjust for actual policy performance.

2018 – Book – Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition, Donna Claire, Lombardi and Summers

  • Just as universal life was a quantum leap over traditional products administratively, variable universal life is a quantum leap over universal life.

—  Zafar Rashid

1985 – SOA – Variable Universal Life Insurance Society of Actuaries – 22p

  • Bill White, chief actuary, New Jersey, reported on their special project pertaining to universal life.
  • Their commissioner, on June 25, 1982, declared an 81-day moratorium on “Universal-Flexible Factor” type of policies.  

1982-2, NAIC Proceedings

  • I think most of us have probably been involved in UL product development and recognize it to be a quantum leap in product design theory as opposed to the jiggling that we used to do in trying to innovate within our product portfolios.

—  Allen D. Booth

1982 – SOA – Universal Life – Three Different Viewpoints: Stock, Mutual, Canadian – 26p

Interest Rate Risk – (C-3)

  • SOA
  • C-3 Risk
  • Committee on Valuation and Related Problems – Trowbridge Committee

C. L. Trowbridge coined the term C-3 risk to denote the risk of losses due to changes in interest rates.

1988 – SOA – Algorithms for Cash-Flow Matching, /tsa88v40pt115 – Society of Actuaries – 8p

  • My last point is beyond interest rate risk.
  • The credit crunch was an event risk in the credit markets.
  • Even if you had the latest and greatest interest-rate-risk model, it did not envision this type of event risk.
  • The warning is to be careful for these “other risks.”
  • When you think you understand everything that can happen, something new happens.

—  Anthony Dardis

1994 – SOA – Asset / Liability Management (ALM): AN International Perspective, Society of Actuaries – 18p 

  • In many jurisdictions, insurance companies have expended significant efforts to understand the sensitivity of their investment portfolios to underlying market risks, especially interest rate risk.

2001 11 – BIS / The Joint Forum – Risk Management Practices and Regulatory Capital Cross-Sectoral Comparison – 126p

  • The mismatch between the cash flows from assets and liabilities for traditional products like universal life or fixed annuities is due mostly to interest rate risk. (p18)

2018 – IAIS – GIMAR – Global Insurance Market Report – 72p

  • 1981 – SOA – The Impact of Inflation on Insurance and Annuity Reserve Valuation: The C-3 Risk, Society of Actuaries – 44p
  • 1982 – SOA – The Financial Risk to Life Insurance Companies from Changes in Interest Rates, rsa82v8n13 – Society of Actuaries – 56p
  • 1985 – SOA – Measuring the Interest Rate Risk,  Paul R. Milgrom,  Society of Actuaries – 62p
  • 2002 – SOA – Phase 2 Of The C-3 Project Update, rsa02v28n175pd – Society of Actuaries – 26p
  • The December 12, 1981 report on this subject discussed the risk of loss to a life insurance company from changes in the interest rate environment (now commonly referred to as “(C3) risk”), and its implications for actuarial opinions of reserve adequacy and minimum surplus tests.
  • We noted a number of important projects underway and indicated chat we would monitor the projects and report to the TSAG on progress in the spring of 1982.
  • We do that with this report.

1982-2, NAIC Proceedings

  • Life insurance companies are also largely exposed to interest rate risks through long-term life insurance products with guaranteed interest rates. (p20)

2001 11 – BIS / The Joint Forum – Risk Management Practices and Regulatory Capital Cross-Sectoral Comparison – 126p

  • A major problem facing the insurance industry today is interest rate fluctuations.
  • If the terms of the assets are shorter than those of the corresponding liabilities, reinvestment risk arises because interest rates can fall.
  • On the other hand, if assets are invested longer than liabilities, then disinvestment risk exists because interest rates can rise.

1988 – SOA – Algorithms for Cash-Flow Matching, Society of Actuaries – 8p

2013 NAIC State of the Life Insurance Industry p137 2013 NAIC State of the Life Insurance Industry p137