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