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 - 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