Surplus

  • The availability of surplus sometimes constrains the growth of an insurance company.
    • To optimize growth, a company under such constraint must develop equivalent profit standards for all opportunities that use surplus, such as sales of insurance products, acquisition of investments, or development of a sales force.

1981 – SOA – Insurance Company Growth, Society of Actuaries – 50p

  • 1977 – SOA – Surplus Needs of Life Insurance Companies, rsa77v3n420 – Society of Actuaries – 28p
  • 1986 – SOA – Determination of Appropriate Surplus Levels, rsa86v12n25 – Society of Actuaries – 46p

Moral Hazard

  • Financial Crisis
  • We argue that changes in the life insurance industry have created a nontrivial moral hazard.
    • We document the industry’s shift from sales of life insurance to sales of mainly rate-of-return oriented investments like single premium deferred annuities (SPDAs) and guaranteed investment contracts (GICs).

1992 – FRB-Minneapolis – SPDAs and GICs: Like Money in the Bank?, by Neil Wallace and Richard M. Todd, Federal Reserve of Minneapolis – 18p

  • If you go too far in insuring or regulating, what you create is a moral hazard where the market participants themselves don’t worry about the risks being taken, because they expect “Uncle Sugar” to bail them out. (p34)

—  Edward C. Ettin

2006 0310 – FRB – Federal Reserve Board Oral History Project – Interview with Edward C. Ettin, Former Deputy Director, Division of Research and Statistics – 57p

Value

  • Chapter 9
    • Elizur Wright
    • “Value” – extended term
  • (p153) – he = Patrick Brockett, Plaintiff Expert Witness
    • And he identified the fact that sometimes when the market performs lower, the policy has less value.
    • Is that a secret, that sometimes when the market performs at a lower rate of return, the policy will have less value?

2014 0425 – LC – Walker vs Life Insurance Company of the Southwest, LSW – DOC 813 – Trial Transcript – 224p

  • An alternate means of measuring activity in the life insurance market is by examining the value of life insurance policies in force.
  • This refers to the value of all life insurance policies written and recorded on the books of the insurance firm which are unexpired as of a given date.
  • The value of life insurance in force at the end of 1988 was $ 8.02 trillion.18

1991 03 – GOV (House Report) – Descriptive Analysis of the Insurance Industry in the United States – [PDF-185p-GooglePlay] -> Not on govinfo.gov

  • Universal Life’s policy structure confers upon policyowners the ability to see all transactions affecting policy values while providing themselves with an insurance benefit.

— Roland A. Dieter

1984 – SOA  – Is Universal Life Manageable?, Society of Actuaries – 3p

Demutualization

  • 1983 12 – SOA – The Actuary – act-1983-vol17-iss10-angle – Society of Actuaries
  • 2000 – SOA – U.S. and Canadian Demutualizations-Postmortem, rsa00v26n3130pd – Society of Actuaries – 21p
  • (p54) – 1:34-1:41 – Bruce BRALEY (D-IA) – Mr. Dinallo, I want to start with you.
    • Twenty-five years ago,I was a research assistant to Professor Alan Whitus, who was updating the Keeton and Whitus basic text on insurance law; and I think both Professor Whitus and Professor Keeton would be rolling over in their graves seeing what has happened to the industry that they were so passionate about.
      • I think you would agree with me that industry has changed radically in the 25 years that I’ve been talking about.
  • Eric DINALLO, Superintendent, New York State Insurance Department – Yes. In particular going from mutual companies to publicly traded companies.
  • Mr. BRALEY. And a lot of those demutualizations resulted in a significant financial loss to policyowners who owned the shares of those mutual companies-who owned the mutual companies and during the conversion in many cases were screwed out of their financial share of those companies.
  • Mr. DINALLO. I might not use the same verb, but I will agree.
  • Mr. BRALEY. I think you get my point.

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

Deposit

  • Bank-like
  • Deposit Term Policy
  • Demand Deposits
  • Savings Deposits
  • 2010 08 – AP – Systemic Risk and Deposit Insurance Premiums, by Viral V. Acharya – 11p
  • Demand Deposits Demand deposits are funds on deposit with banks; they are subject to immediate withdrawal and are classified as cash.
  • Savings Deposits – These are interest-earning accounts in which the depositor is required (or may at any time be required) by the bank to give notice in writing not less than 30 clays before a withdrawal is to be made.
  • Banking regulations provide that banks may waive the requirement of notice if the waiver applies to all depositors having the same provision of notice.
  • The general banking practice today is to waive this 30 day notice, with balances withdrawable at any time during banking hours.
  • Interest usually is earned from date of deposit to date of withdrawal and is credited periodically to the account.  (p22)

1988-2, NAIC Proceedings

Runnable

  • We define “runnables” as “pay-on-demand” transactions which embed defaultable promises made by private agents or state and local governments without explicit insurance from the federal government.

2015 0903 – FRB – The Runnables – [link]

A life insurance policy is not indentured servitude.

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

  • Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Financial Institutions and Consumer Protection
  • Re: Subcommittee Hearing: “Finding the Right Capital Regulation for Insurers”
  • The purpose of this chapter is to explain why the insurance sector may be a source for systemic risk.
  • In brief, we argue that the insurance industry is no longer traditional in the above sense and instead…
    • (i) offers products with non-diversifiable risk,
    • (ii) is more prone to “runs”,
    • (iii) insures against macro-wide events and (iv) has expanded its role in financial markets.
  • This can lead to the insurance sector performing particularly poorly in systemic states, that is, when other parts of the financial sector are struggling.

AP – Is the Insurance Industry Systemically Risky?, by Viral V Acharya and Matthew Richardson – 24p

  • 2015 0325 – GOV – FSOC Accountability Nonbank Designations
    • [PDF-165p,  VIDEO-CSPAN -todo]
    • (p37/2:08) – Elizabeth Warren
      • I am all for increased transparency, but I assume the Council must balance transparency against disclosing confidential or potentially market-moving information.
  • Filing at holding co. level may, however, cause liquidity stresses at the insurance subsidiary level because of exposures to affiliates, and / or runs because of name aversion (risk of run mainly at the life insurance subsidiaries).

2008 0916 – FRB – Systemic Impact of AIG Bankruptcy attachment to FRBNY internal email from Alejandro LaTorre to Geithner – FCIC Records – 3p

  • 2015 0903 – FRB – The Runnables – [link]  
  • 2015 – FRB – “Self-fulfilling Runs: Evidence from the U.S. Life Insurance Industry,” Finance and Economics Discussion Series 2015-032. Board of Governors of the Federal Reserve System (U.S) – 52p
  • 2008 0912 – FCIC – FRB – Alejandro LaTorre Email to Geithner et al re Update on AIG – 2p [Bonk: Not on web, need to upload]
    • They are also large issuers of annuities and have $11B of contingent exposure in their domestic retirement services business.
    • These are retail but run by large sponsors who could encourage accounts to put back the annuities in exchange for cash if they lose confidence in AIG.
    • These sponsors are U.S. banks who have exposure elsewhere.
    • This could be on top of the $18B payout above.
    • They have similar exposures in Japan but could not quantify the size.

  • Breakdown of the $18.6B is: Failed rolls on ABCP: $4.7B, Collateral posting on Muni GICs: $6B, Collateral posting on Structured Lease GICs: $3B, Collateral posting in derivatives contracts: $5B

  • 2017 0328 – GOV (House) – The Arbitrary and Inconsistent Non-Bank SIFI Designation Process – [PDF-83p, VIDEO-YouTube] 
  • David Zaring, Associate Professor, Legal Studies and Business Ethics, The Wharton School
    • What AIG did, in addition to its runnable securities-lending business, was get involved in a new industry or a new business, writing credit default swaps where it didn’t understand the risks posed in that business.
    • That is the kind of thing that a regulator is supposed to be able to step in and caution a firm that it should pay attention to. And I think that forgetting the lessons of AIG is unwise to the extreme.
  • As of 2012, 40.0 percent of the industry’s aggregate life insurance reserves and 12.5 percent of its total reserves were for universal life insurance (see table 1).
  • It is the most popular insurance product.

2013 – FRB-C – The Sensitivity of Life Insurance Firms to Interest Rate Changes – [link]

  • 2014 1218 – FSOC/MetLife – Basis For The Financial Stability Oversight Council’s Final Determination Regarding Metlife, Inc – 31p
    • 3.1 Transmission Channel Analysis (p15)
      • In light of MetLife’s size, leverage, interconnectedness with other large financial firms and financial markets, provision of products that may be surrendered for cash at the discretion of its institutional and retail contract holders and policyholders, and impediments to its rapid and orderly resolution, material financial distress at MetLife could have significant adverse effects on a broad range of financial firms and financial markets, and could lead to an impairment of financial intermediation or financial market functioning that could be sufficiently severe to inflict significant damage on the economy.
      • Accordingly, the Council has determined that material financial distress at MetLife could pose a threat to U.S. financial stability.
  • 2014 0909 – GOV (Senate) – Wall Street Reform: Assessing and Enhancing the Financial Regulatory System, aka Financial Regulatory System – [PDF-177p, VIDEO-CSPAN]
    • (p24) Mr. TARULLO – So, Senator, I guess I would draw a distinction between the creation of capital standards for traditional or current insurance activities, on the one hand, and an assessment of systemic risk on the other.
      • My own reading of the FSOC process with respect to Prudential and AIG is that there is not a lot of concern about the core insurance activities of those companies.
      • The concerns were with respect to some nontraditional insurance activities where runnability is more of a concern, and also with respect to things that are not insurance activities of any sort.
      • I think that is where the analysis would allow one to conclude there is systemic importance.
      • I personally do not think that the issue of whether there is systemic importance in traditional insurance activities has really been broached, and I am personally not sure we need to broach it.
      • I mean, my pretty strong presumption would be that there is not.
    • Senate – BANKING, HOUSING, AND URBAN AFFAIRS
  • 2014 0917 – GOV (House) – Oversight of the FSOC – [PDF-72p, VIDEO-youtube]
  • Mr. FITZPATRICK. Governor Tarullo also noted that AIG and Prudential were designated as systemic not because of their core insurance activities but due to what he called ”nontraditional insurance activities,” where runnability is more of a concern, and also with respect to things that are not insurance activities of any sort.
    • Do you agree with Governor Tarullo that to justify designating an insurance company as an SIFI that one would have to find that the company engages in activities that are not traditional insurance activities and that do pose systemic risk?
  • Mr. PINSCHMIDT. I haven’t had an opportunity to talk to Governor Tarullo regarding his testimony, but the analysis that was done for the insurance companies was company-specific rather than industry as a whole, and it was based on the size, leverage, and interconnections of those companies and how that makeup could transmit to the rest of the financial system.

Contagion

  • 1994 – FRB / AP – Announcements of Asset-Quality Problems and Contagion Effects in the Life Insurance Industry, Journal of Financial Economics, Vol. 35, No. 2 – 29p
    • 2014 1218 – LC – 15-cv-45 – MetLife v FSOC – re: MetLife – D85-2, 85-2 – Explanation of the Basis of the Financial Stability Oversight Council’s Final Determination that Material Financial Distress at MetLife Could Pose a Threat to U.S. Financial Stability and that MetLife Should be Supervised by the Board of Governors of the Federal Reserve System and Be Subject to Prudential Standards  —   [BonkNote]   —  387p
  • And doubts about the value of AIG life insurance products could have generated doubts about similar products provided by other life insurance companies, feeding the panic that was crippling the economy.  (p78)

— Tim Geithner

2009 1210 – COP – TREASURY SECRETARY TIMOTHY GEITHNER – 98p, VIDEO-Youtube] – MP3

  • [Bonk: Contagion-?]
  • In the meantime, a movement was afoot within the life insurance industry led by Metropolitan Life Insurance Company, as well as the securities brokerage industry, to put together an enhanced rehabilitation plan which would raise the crediting rate on the SPDAs from 5.5% to at least 7.5%.
    • This effort was motivated not only by a desire to salvage the reputation of SPDAs as an investment vehicle, but also to make the SPDA holders whole and thus eliminate damage claims in the many suits filed against the brokers who sold SPDAs.
    • Forty of those cases had been consolidated in the United States District Court for the Southern District of New York, and came to be known as MDL 581, (The Honorable Charles Brieant presiding); In re Baldwin-United Corporation Litigation, 581 F. Supp. 739 (J.P.M.L. 1984).
    • Any commitment to such a plan, financial or otherwise, was initially contingent upon a resolution of the dispute between the rehabilitators and the Debtors.
    • If this could not be accomplished by early 1985, the possibility of an enhancement plan was threatening to evaporate.

1987 1016 – LC – Matter of Baldwin-United Corp, (Bankr.S.D.Ohio 1987) – United States Bankruptcy Court, S.D. Ohio, W.D.  Oct 16, 1987 – casemine.com/judgement/us/5914c194add7b049347ba6af

⇒  CITATION CODES – 79 B.R.321, DOCKET NO. – Bankruptcy No. 1-83-02495.

  • (p93) – [Contagion] – MetLife’s size and market prominence increase the potential for MetLife’s material financial distress to cause or exacerbate contagion.
    • MetLife holds approximately 10 percent of the total admitted assets (on a statutory basis) in the U.S. life insurance industry422  and has a market share of life insurance products of approximately 16.6 percent.423
    • Institutional and individual contract holders and policyholders with the ability to surrender or withdraw their contracts early may seek to do so.
    • MetLife’s material financial distress could lead investors to withdraw from other insurers or other significant financial intermediaries, out of fear that those firms could also experience distress.424
    • These actions could lead to a reduction in the provision of credit and a reduction in financial markets activities by market participants seeking to reduce exposures to other financial firms, which could impair financial intermediation and financial market functioning.
    • Institutional policyholders could potentially experience greater losses because of institutional products that have redeemable, investment-like features that may increase MetLife’s near-term liabilities and do not have any additional third-party protections.
      • Notably, the avoidance of contagion effects was an important concern before the intervention that helped to prevent the potentially disorderly failure of AIG in the fall of 2008.425

2014 1218 – LC – 15-cv-45 – MetLife v FSOC – re: MetLife – D85-2, 85-2 – Explanation of the Basis of the Financial Stability Oversight Council’s Final Determination that Material Financial Distress at MetLife Could Pose a Threat to U.S. Financial Stability and that MetLife Should be Supervised by the Board of Governors of the Federal Reserve System and Be Subject to Prudential Standards  —   [BonkNote]   —  387p

  • (p15) – These resources and the record of success for coordinated responses clearly demonstrate that the fear of “contagion” resulting from a run on insurer assets is greatly overstated

2015 0626 – LC – 15-cv-45 – NAIC – Document 43 – Consent Motion of the National Association of Insurance Commissioners for Leave to File Brief as Amicus Curiae in Support of Plaintiff Metlife, Inc. – 32p

  • (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.

2011 1116 – GOV (House) – Insurance Oversight and Legislative Proposals, Judy Biggert (R-IL) – [PDF-131p – VIDEO-?]

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  ---  [BonkNote]  ---  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