1991 0509 - GOV (Senate) - Insurance Company Solvency

  • 1991 - 0227, 0507/09/23 - GOV (Senate) - Insurance Company Solvency, aka Insurance Company Insolvencies -  - <No Video-0227/0507 and 0523> -  0509-VIDEO-CSPAN][PDF-369p-GooglePlay]
    • program.14011.MP4-M20
    • Panel  -
      • Donn Sigerson - Policyholder / President, Executive Life Support Network
      • Alfred Sigman - Sigman and Lewis - Lawyers for Pacific Lumber
      • Eden Sarfaty - (President - National Org. Life Health Ins. Guaranty-NOLGHA)
    • Richard Minck - (ACLI)
    • Thomas Sutton (CEO - Pacific Mutual Life/ACLI)
    • John Washburn, former Illinois Commissioner of Insurance
    • Thomas Borman, former Commissioner of Commerce, State of Minnesota
    • Maxxam

Panel 1

04:50- - Intros

S - 00:10:24-00:27:00 - Donn Sigerson - Policyholder / President, Executive Life Support Network

S - 00:27:25-00:40:35 - Alfred Sigman - Sigman and Lewis - Lawyers for Pacific Lumber

S6 - 00:40:35-00:47:47 - Eden Sarfaty - (President - National Org. Life Health Ins. Guaranty-NOLGHA)



S - 00:48:00- - Eden Sarfaty - (President - National Org. Life Health Ins. Guaranty-NOLGHA)

  • 1:27: - Eden - How the Costs get paid - The pubic pays for everything



S10 - 01:45:00 - Tom Sutton /  - 


35:00-40:40 - Alfred Sigman -  Pacific Lumber cases, 70% of benefits being paid, IRS Claims, 

  • 36:30-38:45 - PBGC / ERISA - State Guaranty Funds - California Just enacted State Guaranty Funds - Mabe doesn't appl to Pacific Lumber - Group Contract Dollar Limitation - $5 million limit on $37  Million of Pacific Lumber Obligations.

40:40-48:00 - Safarty - started because of Baldwin United, most of individual polic holders will be ok.  (44:00) GIC;s - comes out of the pockets of other people.  not enough money to guarantee all companies.  li vs banks / S and L's. Solvency, RBC, Prevention vs after the fact, Banks vs LI

48:00 - to Siegerson - How did he decide to buy his policy.

58:00 - to Alfred Sigman - Leveraged Buyouts - ERISA - termination of Defined Benefit Plan, Surplus, Takeover target.

  • 01:01:00 - Actuarial Assumptions, PBGC, Benefits Caps

01:04:00 - 01:09:00 -  to Safarty - 50 Billion dollars worth of Coverage?  Different kinds of protection.  Individual vs group. Hot Money.  Very Unusual in the Life Insurance Industry.  Insurance Industry historically Conservative.  Limits - Naked Investments - Junk Bonds

01:09:00 - re: NAIC - lots of Insurance Companies invested in Junk Bonds 

  • Safarty - not all Junk Bonds are alike -- have no market other should fully perform

01:11:00 - to Safarty are the pensioners guaranteed? hard to discuss all variations,

01:12:00- - to Safarty re: GICS.  

01:13:00 - to Safarty re: Guaranty Associations Operations, public notice, open meetings. playing a game, not a secret proceedings, 

01:19:00 - Byron to Safarty - we don't want this to happen again. Eden - Prevention and Detection. Check and Balance mechanism -- Watch over.  

01:21:53 - Safarty

01:23:00 - Safarty - Board of Directors of Nolgha -

01:25:00 - 

01:26:00-01:28:30 - Safarty - How are the costs passed on? 

"executive life support network"

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.


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?


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 

Senator BRYAN.

  • You think so. And can you tell us how widespread that is likely to be?
    • Because although some have tried to say, "Well, you know, the Congress is just trying to get itself involved in another area.” 
  • When you see this kind of a report and other comments which are made in financial journals, not by those who hold public office, and you look back over the decade and I must say I consider myself very lucky...
    • I was not here in Washing ton in the 1980's.
    • I was very fortunate from my perspective.
  • I must say that there is kind of this blurred impression that in the 1980's, folks from the savings and loan industry were saying, "Hey, there is some isolated problems, no need to get involved."
  • We all know how that story came out.

A year ago, I happened to serve on the Banking Committee as well.

  • We were told, look, that that fund is fine, that we are not going to need any Federal bailout.
  • Today I attended a hearing in which representatives of the industry, the independent banking association, the ABA , the major trade associations, if you were lining up, you know, a $10 billion plus loan to in effect recapitalize the system.
  • That ultimately, as you well know, Mr. Sutton <ACLI / Pacific Life>, means you and I, the taxpayers, all of us collectively.

And so when we hear these assurances it is not that we impugn your integrity, but I must say that there is a hope that you are right- because that is the last thing the country needs or this Congress needs to deal with.

But give us a little bit more of your sense.

  • How widespread is the problem out there?

And what levels of failure are we likely to see under the reasonable parameters, as opposed to the most Draconian, you know, a complete economic collapse?

1991 Insurance Company Insolvencies


Senator BRYAN.

  • Is the concept of a disclosure offensive to you, assuming that you could get a disclosure that is not so highly technical as to be actually meaningless?
  • But I mean, is the concept of full disclosure at the point of sale, assuming that you could get something that is more understandable than the complexities might permit it to be?
  • You can be so complex that nobody is going to read it, and those that do --

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)

1991 - GOV - Insurance Company Solvency