Dots - The Life Insurance Business Changed

The Causes and Effects of the AIG Bailout- AIG Bailout Oversight Hearing 

(p54) - 1:34 - 1:41

Bruce Braley (D-IA):

Mr. Dinallo, I want to start with you.

  • Twenty-five years ago, I was a research assistant to Professor Alan Whitus, who was updating the Keeton and Whitus basic text on insurance law; and I think both Professor Whitus and Professor Keeton would be rolling over in their graves seeing what has happened to the industry that they were so passionate about.
  • I think you would agree with me that industry has changed radically in the 25 years that I’ve been talking about.
  • 1992 Summer - FRB - SPDAs and GICs: Like Money in the Bank? - Federal Reserve - [LINKtoPDF-18p]
    • (p3) - “In 1980 the life insurance industry was 150 years old. In 1990 . . . [it] was ten years old.” This is how Gary Schulte (1991, p. 88), a Senior Vice President of Executive Life of California, summarized the impact on the life insurance industry of the growth in investment-oriented products in the 1980s.
  • 1991 - Book - The Fall of First Executive: The House That Fred Carr Built, Schulte, Gary

1986 0812 // 0910/24 //1002 - GOV (House) - The Liability Insurance Crisis- Part 2 - [pdf 403p-GoogIePIay, No Video]

  • Testimony - James P. Corcoran (New York State Superindent of Insurance) - p379-392
    • And the once staid Business of Life Insurance has become a whole new realm of finance where consumers are being offered a variety of products incorporating traditional protection along with investment potential and asset management.

I am not sure there are any serious issues confronting the life insurance industry these days, unless of course you consider solvency, liquidity, junk bonds, deteriorating mortgage and real estate portfolios,risk-based capital requirements, asset mix, separate accounts, credit risk, Congressional inquiries, shrinking surplus, demutualization and more.

What happened? How did a boring, straight-forward business become so interesting and so difficult to regulate?

During the past decade the life insurance industry has undergone dramatic changes. A business that was  previously characterized by stable risks and generous profits has been transformed into one marked by instability of risk and evaporating profit margins.

The change was precipitated by the dramatic rise in interest rates in the late 1970s and early 1980s. The relatively high rates offered by money market funds, Certificates of Deposit and other similar products prompted insurers to develop insurance alternatives that shifted the marketing emphasis from security to, at least partially, rate of return.

Chapter 1, Life Insurance and the Question of Solvency Salvatore R. Curiale, Superintendent of Insurance, New York State Insurance Department

2012 - Financial Management of Life Insurance Companies, edited by J. David Cummins - Huebner International Series on Risk, Insurance and Economic Security