Q: AIG – Was AIG an Insurance Company or something Else?

  • Mr. BAROFSKY.  (SIGTARP – Special Inspector General for the Troubled Asset Relief Program)
    • The moral hazard generated by TARP wasn’t just limited to banks, it was, as you said, to insurance companies like AIG… (p38)

2011 0330 – GOV (House) – Has Dodd-Frank Ended Too Big To Fail? – [PDF-103p, VIDEO-Part 1 and Part 2] 

  • And we were told that it was the intention of the Federal Reserve, with the full support of the Administration, to make $80 billion available for the insurance company AIG. 

—  Barney Frank (D-MA)

2009 0210 – GOV  (House) – Extraordinary Efforts by the Federal Reserve Bank to Provide Liquidity in Current Financial Crisis – [PDF-123p, VIDEO-archive.org]

  • (p5) – Ed Royce (R-CA) – Certainly, noting the failure of AIG, once the Nation’s largest insurer, is relevant, given the focus of today’s hearing.
  • (p7) – Melissa Bean (D-IL) – The collapse of AIG, the world’s largest insurer, has proven to be one of the most costly and dangerous corporate disasters in our Nation’s financial history.
  • (p29) – Mike CAPUANO (D-MA) – But everybody here thinks that there is <NO> one company that somehow provides systemic risk. That’s what I heard. I don’t think I heard anybody say anything different.
    • Has anybody here heard of the company AIG? I know it hasn’t been in the news lately.
  • (p29) – Michael MCRAITH (IL, NAIC) – But, Congressman, to be clear, AIG is kind of colloquially referred to as the world’s largest insurance company. But it is 71-

Insurance and Systemic Risk) – [PDF-181p,

  • 2009 0305 – GOV (House) – Perspectives on Systemic Risk – [PDF-254p
    • 4:30 / p32 – Terri Vaughan (IA, NAIC CEO) –
      • The problem is that we did have this-I would say AIG was not an insurance company.
      • It was a large complex financial institution, large globally complex financial institution.
  • Q. AIG was the largest insurance company in the world; correct?
  •  A. That’s correct.  (Geithner)  (p61)

2014 1008 –  Starr International Company, Inc. v. The United States – Case 1:11-cv-00779-TCW – Trial Volume 8 – Geithner – 254p

  • YPFS: Since AIG is an insurance company, what was the role of the insurance regulators and their interaction with the Fed during this time?
    • Baxter: The insurance commissioners really didn’t help the rescue of AIG, but they didn’t harm it either.

2018 1120 – Yale – YPFS – Lessons Learned Oral History Project Interview: Thomas Baxter, General Counsel of the Federal Reserve Bank of New York  —  [BonkNote]  —  19p

  • Dennis Ross (R-FL)
    • And would it not be just as likely, then, because of the precedent set there, that such packages, TARP packages would now be considered for nonfinancial institutions; insurance companies?
    • We saw that with AIG, but I guess my question is does this not set a precedent that goes well beyond assisting the too big to fail financial institutions and to any entity that may be deemed to be too big to fail, regardless of what their commercial purpose is? (p38)
  • Mr. BAROFSKY.  (SIGTARP – Special Inspector General for the Troubled Asset Relief Program)
    • The moral hazard generated by TARP wasn’t just limited to banks, it was, as you said, to insurance companies like AIG… (p38)

2011 0330 – GOV (House) – Has Dodd-Frank Ended Too Big To Fail? – [PDF-103p, VIDEO-Part 1 and Part 2] 

  • “In this case, we’re dealing with the largest insurance company in the world,” Mr. Bernanke said.
    • “Its failure would have sent shockwaves through the entire insurance industry” and likely beyond.

2009 0303 – NYT – Fed Chief Says Insurance Giant Acted Irresponsibly – [link]

  • 14AIG Financial Products (AIGFP) is an example of a firm that does not fit neatly into the microprudential regulatory framework.
  • Although it was an insurance company subsidiary, it was supervised by a domestic housing regulator, the Office of Thrift Supervision (OTS), without deep expertise in the credit derivatives that were AIGFP’s specialty. (p19)

2012 0105 – OFR – A Survey of Systemic Risk Analytics – 165p

  • However, after the financial crisis in 2008, the bankruptcy crisis at AIG, the world’s largest insurer, raised concerns about systemic risks in the insurance industry, realizing that insurance industry may also give rise to systemic risks.  (p8)

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

Securitization

  • The comment is regarding our discussion of structured transactions wherein securitization of policyholder loans was also mentioned.
  • We at Prudential-Bache are still working on a structured transaction involving policyholder loans.

— Dr. V. Michael Shante

1987 – SOA – New Investments and New Investment Strategies, Society of Actuaries – 48p

  • The article discusses the securitization of pools of life insurance policies, reminiscent of the securitization of sub-prime mortgages.
  • Then state and federal attempts at regulation and a variety of lawsuits are summarized.

2011 – LR – Betting On The Lives Of Strangers: Life Settlements, STOLI, and Securitization, by Susan Lorde Martin – 47p

  • 2009 0924 – GOV (House) – Recent Innovations in Securitization, Paul E. Kanjorski (D-PA) – [PDF-123p, VIDEO-archive.org]
    • Written statement of Joseph M. Belth  – p103-
    • Testimony – Susan Voss (IA) – NAIC
    • House – Committee on Financial Services – Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises

1980s

  • 1987 – SOA – New Investments and New Investment Strategies, Society of Actuaries – 48p
  • 1988 – SOA – Securitization of Policy Loans, rsa88v14n313 – Society of Actuaries – 30p
  • 1989 – SOA – Securitization of Assets, Society of Actuaries – 10p

1990s

  • 1997 – SOA – Securitization of Insurance Company Assets and Liabilities, rsa97v23n374pd – Society of Actuaries – 25p

2000s

  • 2003 10 – IAIS – Issues Paper – Issues Paper on Life Insurance Securitisation – 12p
  • 2004 0103 – AP – Securitization of Life Insurance Assets and Liabilities, Submitted to: TIAA-CREF Institute, By J. David Cummins, The Wharton School – 66p
  • 2005 – AP – Securitization of Life Insurance Assets and Liabilities, Alex Cowley and J. David Cummins, The Journal of Risk and Insurance – Vol. 72, No. 2 (Jun., 2005), pp. 193-226 – 34p – jstor.org/stable/3519948
  • 2006 – PWC – Innovative Financing: Life Insurance Securitisation, PricewaterhouseCoopers – 16p
  • 2009 05 – LR – Systemic Risk Through Securitization: The Result of Deregulation and Regulatory Failure, Patricia A. McCoy, Andrey D. Pavlov & Susan M. Wachter – 49p
  • 2009 0924 – GOV (House) – Recent Innovations in Securitization, Paul E. Kanjorski (D-PA) – [PDF-123p, VIDEO-archive.org]

2010s

  • 2010 – AP – Securitization of life insurance policies
    • Insurance Markets and Companies: Analyses and Actuarial Computations, Volume 1, Issue 2, 2010, by Snorre Lindset (Norway), Andreas L. Ulvaer (Norway), Bertel Anestad (Norway)
    • Abstract:  In this paper we develop, price, and analyze a securitization structure of life insurance policies.
    • By transferring term insurance policies to a special purpose vehicle, all risk is transferred from insurers to the capital market.
  • 2011 0422 – WSJ – AIG Tries to Sell Death-Bet Securities, By Leslie Scism – [link]
  • 2011 – LR – Betting On The Lives Of Strangers: Life Settlements, Stoli, And Securitization
    – 47p
  • 2012 – AP – The Impact of Life Insurance Securitization on the Issuer’s Default Risk, by Jonas Lorson, Working Papers on Risk Management and Insurance, NO. 117 – 24p
  • 2011 0422 – WSJ – AIG Tries to Sell Death-Bet Securities, By Leslie Scism – [link]
    • The new wrinkle of securitization arose in the market’s boom years before the financial crisis.
      • Just as Wall Street banks bundled mortgages to make mortgage bonds, financiers looked into bundling hundreds of life-insurance policies into bonds that they could then sell, with the bonds’ income coming from the death benefits.
    • The industry’s trade group, American Council of Life Insurers, has criticized the concept, saying the existence of a Wall Street pipeline that needs to be filled with policies could encourage fraud by commission-paid agents and others trying to get older people to purchase and sell policies.
    • AIG’s life-settlement business is in its Chartis property-casualty division. 
    • Chartis also has been involved with life settlements in another way. It has sold “lender protection” insurance to a finance firm that lends to people to help them pay premiums on multimillion-dollar life policies, according to a prospectus for a stock offering by Imperial Holdings Inc. earlier this year.

Lapse vs. Surrender

  • Lapses and Surrender Charges
    • Ideally you would like to compare lapses (no cash value) and surrenders (with cash value).

1994 – SOA – VALUATION ACTUARY SYMPOSIUM PROCEEDINGS – SESSION 8 – Life and Deferred Annuity Liability Models – 32p

Reserve Relief

  • It is ironic, for example, that state regulators are boasting in Congress about the effectiveness of their capital and reserve requirements in stabilizing insurers even as several states act quietly at the individual state level to loosen those requirements.  (p4)

—  J. ROBERT HUNTER, DIRECTOR OF INSURANCE – CONSUMER FEDERATION OF AMERICA – Testimony – 47p

2009 0317 – GOV – Perspectives on Modernizing Insurance Regulation – [PDF-160p

  • Warren Buffet – FCIC Interview – mp3
  • NAIC Proceedings
    • 1933
    • 198x
    • 2008
  • Belth
  • Re: ACLI’s Proposed Amendment to Actuarial Guideline XXXVIII

— ALIA

2010-2 (Summer) – NAIC Proceedings

Market Conduct Regulation vs. Solvency Regulation

  • 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.  

“Deceptive Insurance Methods –The Cure”, By Mr. E. E. Rittenhouse (Insurance Commissioner of Colorado) – (p215-228)

1907-0, NAIC Proceedings

  • (p12) – Daniel Schwarcz (Associate Professor, University of Minnesota Law School:
    • So, notably, you will see that my testimony was focused on different issues than many of the other witnesses, and that is because it is true that solvency regulation is in many ways the core of insurance regulation.
    • Now, I say this to contrast it with market conduct and other forms of consumer regulation…. 
  • (p13) – Terri Vaughan (NAIC-CEO / IA)
    • The first thing I want to say, I agree with Professor Schwarcz that the level of our collaboration in market regulation is behind the level of collaboration in solvency regulation and that is something we have been working on for a number of years, to try to increase the collaboration.  

2011 0914 – GOV (Senate-Banking/SII) – Emerging Issues in Insurance Regulation, Jack Reed (D-RI)  —  [BonkNote]

Plan of Insurance vs Policy vs Contract

  • Any of the foregoing provisions or portions thereof not applicable by reason of the plan of insurance may to that extent be omitted from the policy. (p243) 

1942-Supplement, NAIC Proceedings

NAIC - Index

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2008 Financial Crisis – Insurance Regulators

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

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

Regulatory – Index

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

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

—  Frank S. Irish, ASB – Actuarial Standards Board

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

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

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

  • I think this committee should announce to the NAIC officers that …. they should come up with a disclosure method, and if they do not come up with a satisfactory method by the end of the June meeting, that this committee will proceed.
    • There is nothing like a strong push to get the NAIC moving.
    • The talent is there, the commissioners and the actuarial staffs of various departments can accomplish it.
  • If Admiral Rickover had waited to solve-all the technical problems we wouldn’t have an atomic submarine yet.
    • So, what we need is a push from outside, because without that push I’m afraid the NAIC will study it for decades.  (p1503)

—  John A. Durkin, New Hampshire Insurance Commissioner

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

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

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

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

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

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

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

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

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

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