• Moreover, if you look at FSOC's report designating Prudential as a SIFI, you will see that FSOC, after looking at the portfolio of Prudential quite carefully, says that they are, in fact, potentially susceptible to a run.
• Now, I admit and I want to emphasize this risk is different and less substantial than the risk of a run in banking.
• But at the same time, it is real.
• There, in fact, have been runs on insurance companies. Executive Life in 1991 was subject to a run wherein policy holders removed from the company $3 billion within the course of a single year.
• Why is this significant?
• It can result in systemic risk not because the insurer fails necessarily, but because an insurer facing massive liquidity problems can immediately try to dump its portfolio, thereby interfering with broader capital markets.
• There is emerging research showing that insurers were a big part of the problem in their purchase of mortgage-backed securities leading up to the crisis and in triggering a fire sale of mortgage-backed securities when they offloaded those assets.
• So the point I want to make is this: Insurance is less
  systemically risky than banking, but it can be systemically risky.
• Why then does that lead to the conclusion that we need to have distinct capital requirements at the Federal level?  (p10)

--  Daniel Schwarcz

2014 0311 - GOV - Finding the Right Capital Regulations for Insurers - 105p