Panel 2 - 01:29:00

John Washburn - change in last 10 years, competition, products, profit margins, guaranty funds set up for small consumers, NAIC - forum for ideas, scrutinizing norms and rules, states can act on their own without affecting other states, <exception: Aetna v Wisconsin>, how big a hole do companies need to be in before regulators move.

Tom Borman (former Minnesota Insurance Commissioner) -  01:45:00 - First Executive, Pension Plan losses, experience with California Insurance Commission, Executive Life, Junk Bonds, Policyholders surrender, Drexel, (1:42:00)-Life Insurance regulation should be modeled more like the Bank Regulatory Model.Solvency Standards. Investment Laws, Guaranty Funds, Agents, Accreditation.  Dingell.  

S11 - 01:45:00-01:54:00 - Tom Sutton (ACLI / Pacific Life) - When a company is insolvent, the rest of us bear the cost, in consumer confidence, underpriced products, taking away business, unrealistic interest rates. Pacific Life, losing bidder for Pacific Lumber, Task Force Report, <Search for yield>, companies take unreasonable risks, state regulatory system must be strengthened, 16 recommendations  -> holding companies, reinsurance, early interventions for troubled companies, examinations.  4 key questions: Junk Bonds vs competitive sour grapes, lobbing powers of others, California Assembly, financial euphoria and political clout, 

01:54:00 - Byron - Fed vs State

• to Sutton - Executive Life wasn't like most insurance companies. IDS Position Paper (20% of insurance companies would become insolvent): Sutton - severe to the listener.

01:57:00 - Byron: 80s, Savings and Loans, Banks, Recapitalize, a hope that you are right, but...how widespread is the problem out there...what is reasonable, not draconian.

01:58:  Sutton:  large companies (over 5 Billion in assets),,Maybe 1 or 2 that may be insolvent.  DORGAN: Can't Say.  Small Companies become insolvent because of Fraud.. Affiliates... Impact on Buyer;s = Small.

02:00:00 - Sutton: Actuaries look at the past to make guesses about the future.

Minck (ACLI) - Small Insovencies - 15-20 per year.  

Byron: Risks that are out there...

2:03 - Minck: What happens when companies are in trouble....

Byron-Sutton - Should we be concerned about Guarantees by Guaranty System.  Sutton: No.

Byron - What would be the impact of policyholders on a large company Failure.

Sutton: we don't have to imagine, we have Executive Life. -- Assessments would be maybe a Billion at most.  Capacity of Guaranty system is about 3 Billion.

Minck:  how the claims would for Life Insurance. Companies have conservative liabilities. Assets vs Liabilities. 

02:08:00 to Borman and Washburn (Guaranty Funds) - 

Washburn - Payout patterns very different, asset base left, Regulators need to move in faster.  Guaranty Funds have to give a  plan to Commissioners re: payouts.  

02:10:00 - Borman:  Baldwin-Delay is a concern, not ability of Guaranty Funds.  Litigation is concern.

02:11:00 - Minck - Balwin United.  claims were paid, Annuitants were paid.  Surrenders were not permitted. at the end of the four years everbody got their full amount...

02:12:30 - Washburn - New Concerns in liquidation and being able to pay policyholders, ie. Federal Priority Statute.  IRS-Treasury Department, attachment Commissioners homes.  Guaranty Funds .

02:14:00 - CRS Report - Baldwin-United.  165,000 Annuitants couldn't get their money for 4 years with a reduced interest rate.

02:14:00 - Byron - Devil's advocate role.  Wrath of Governors.  NAIC Junk Bonds Working Group.  Study (Dec 1990).  Confidential statement.  Executive Life - Companies capable of meeting claims, obligations.  New Jersey Commissioner - asked for extra $500,000.   impression - everbody is held in check, if somebody gets too aggressive, then....Sanction and condemn Commissions.

Washburn - hard for commissioners to sell companies, 

02:18:00 - to whom is the Commissioner responsible to? Policyholders? NAIC?

Washburn - you have to work together in a workout, otherwise you wouldn't have had a workout.

Bryan - 

02:21:00 Bryan to Borman - NAIC optimistic 

Borman - Policymaking, standard setting - NAIC is very good.  But as an Executive / Administrative capacity they are weaker.  harder to make decisions when there are 50 people to make the decision.  EX.  Executive Life should have been taken over in 1989-1990.  NAIC has difficult time making the hard decisions.

02:23:00 - Can Commissioners act independently?

Borman:

Washburn: it's easier to stop a non-domicillary company from writing business.  Company will want to go to court.  Commissioners will have to have all their ducks in a row.

Bryan - re: Weiss a couple of days ago.  Prospectus., Status of the Company.  Rating Services re: financial condition of the insurance company's.. legal reprisal.

02:28:00 - Sutton - Rating Services - Legal Threats. did not play a very large part.  major problem for the rest of us.  Disclosure.  Generally open to disclosure.  Life Insurance - 

02:29:00 - Bryan - 

S12 - Mr. SUTTON <Pacific Life / ACLI>:

• My personal opinion is that I would not have any problem with a kind of disclosure that could be communicated simply, but was based on extensive analysis by someone capable of making the appropriate analysis.
• I would not like a simplistic disclosure that could cause great dislocation because it did not recognize all of the factors in what is, in fact, a very complicated business. (p280)

02:32:00 - Bryan - New Investment Instruments - What do we do?

Sutton - Investment Law - New york