Dots - Policyholder Runs

2015 DOC 100-4 - Transcript MetLife/FSOC Meeting 2014 11 03 - 190p - (p18)

Destabilizing runs have not and will not occur in the insurance industry, for the reasons I just mentioned.

So, my point there isn't that an insurance can't fail.

  • My point is that it is not the kind of failure that you see that causes panic, that causes people to take rash actions and move very, very  quickly.

So if people panicked about something, the insurance regulators have a right to step in.

  • They can slow things down.

It is a much slower process in terms of unraveling an insurance company that is in trouble.

--  Steve Kandarian, the CEO, Chairman, and President of MetLife.

  • 2015 1119 Oversight of FSOC - Wagner

Have there ever been Runs in Life Insurance Companies?

    • Yes
      • 2017 0624 - BIS / IAIS - Systemic risk from insurance product features - [link] - 26p
        • 4.17 Policyholder “runs” are rare in insurance, though they have occurred in the past.  (p
      • 1980s - (FTC, Belth, Booth, Volcker, Federal Reserve, BTID)
      • 1990s - Mutual Benefit, Executive Life, Pyramid Life, Baldwin United.
        • 2002 1010 - GOV (House) - The Collapse of Executive Life Insurance Co. and Its Impact on Policyholders [PDF-277p -  Statements of James P. Corcoran, Former Insurance Commissioner, State of New York

      • Daniel Schwarcz
      • <More>
    • No
      • Holtz-Eakin, Ross, 
      • MetLife -  (MetLife v FSOC Document 85-2/3)
      • GOV - Wagner - MO

Are Runs in the Future Possible / Likely?

  • Yes
    •  FSOC
      • Prudential
      • MetLife
    • 1994 04 - The Economic Impact of a Solvency Crisis in the Insurance Industry - Congressional Budget Office (CBO) - 80p
    • 1992 - Is there Life After Executive Life? Retirement Plan Participants and the Guarantees of Insurance Companies, Society of Actuaries - 22p
  • No
    • ACLI - Dirk
    • NAIC - Hamm
    • FSOC Insurance Expert - Woodall

What could Trigger Policyholder Runs on Life Insurance Companies?

  • SOA
    • 1) Future Shock
    • 2) other
  • Reputational Risk
    • Mis-Selling, Premiums / Benefits / LIRP / 
  • Interest Rates
  • Rumors

»  Have there been Runs in Life Insurance Companies ever?

  • Yes, There Have Been Policyholder Runs on Life Insurance Companies
  • 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,

  • No, There Have Not Been Policyholder Runs On Life Insurance Companies

2017 0328 - GOV (House) - The Arbitrary and Inconsistent Non-Bank SIFI Designation Process - PDF-83p

  • (p29) - Mr. ROSS (R-FL).  ...has there ever been a run on an insurance company in the history of the United States?
  • Mr. 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...

»  Are Runs in the Future Possible / Likely?

  • Yes, Run in the Future are Possible / Likely.

1994 04 - The Economic Impact of a Solvency Crisis in the Insurance Industry - Congressional Budget Office (CBO) - 80p

  • Life insurers, whose liabilities are generally more liquid than their assets, are particularly vulnerable to runs by policyholders.  (page x)

»  What could Trigger Policyholder Runs on Life Insurance Companies?

1992 - Is there Life After Executive Life? Retirement Plan Participants and the Guarantees of Insurance Companies, Society of Actuaries - 22p

James Kenney:

  • I believe that the life insurance industry faces major potential failures because of its change in emphasis on what it is selling.
  • 2014 0204 - GOV (House) -The Federal Insurance Office’s Report on Modernizing - PDF-214p
  • 2015 1208 - GOV (House) - Oversight of the Financial Stability Oversight Council - PDF-146p
  • 2017 0328 - GOV (House) - The Arbitrary and Inconsistent Non-Bank SIFI Designation Process - PDF-83p

2014 12 - MetLife/Woodall/Hamm - Views of the Council’s Independent Member Having Insurance Expertise - 13p

(p10) - 4. A key consideration for the final designation is the asset liquidation channel.

  • The final Basis, like the proposed Basis, continues to offer merely speculative outcomes related to the liquidation of assets based in large part on hypothetical and highly implausible claims of significant policyholder surrenders.

(p11) - Even assuming the Council’s asset liquidation analysis was appropriate otherwise, it does not take into account the impact of regulatory intervention as described above.

  • This is exacerbated by the Council’s failure to appreciate the historical effectiveness of the insurance regulatory system in crisis.
  • For example, in response to the arguments by MetLife seeking to analogize the impacts of a failure of MetLife to other insurance company failures in history, the Council notes correctly that the failure of an insurance company of MetLife’s size and scope has never taken place.
  • While that is a fair statement as each company has its own unique characteristics, the fact that there is no comparable insurance failure is a testament to the state insurance regulatory system, a fact that the Council ignores.

2014 0204 - GOV (House) -The Federal Insurance Office’s Report on Modernizing - PDF-214p

(p12) - Leonardi (Connecticut Insurance Commissioner):  It is based on an assumption of a banking model where there could be a run on the bank and Prudential might have to sell a trillion dollars of assets the next day.

  • And that is just—with one very rare exception—not a likely scenario on which to base a systemic designation.  <Bonk:  What is the Exception?>

2015 1208 - GOV (House) - Oversight of the Financial Stability Oversight Council - [PDF-146pVIDEO-youtube

Dennis Ross (R-Florida). There hasn’t been a run on life insurance, has there?

  • Are people all of a sudden going to go and cash in their life insurance policies?
  • Because if they are, then our serious consequences for economic structure are way out of line.   <???> (p47)