Failures

  • No one ever thought GIC defaults could occur.
  • No one thought that the leading insurance companies that were carrying AAA ratings could default in a short period of time.

-- Murray L. Becker

1999 - SOA - Insurance Company Failures of the Early 1990s - Have We Learned Anything?, Society of Actuaries - 25p

  • That said, Mr. Watson, the father of Katie, is quick to note that when selecting his daughter’s annuity, he consulted the ratings carefully before deciding on Executive Life.
    • “Our attorney said that banks have failed, savings and loans have failed, but never in the history of our republic has an A. M. Best top-rated company failed,” he said.
    • “That was enough for me.”
  • The parents of Katie Watson, a girl in Phoenix who suffered permanent brain damage after a hospital stay, put the proceeds from their legal settlement into an Executive Life annuity to help care for her.
    • After the company’s demise, however, their annuity payments fell nearly by half.
    • Her father, Vince, said that the Watsons ended up in foreclosure on a home they had bought to accommodate caring for Katie, and the total shortfall between what the family had received and what it was supposed to get was at least $1 million.

2008 1114 - NYT - What Happens When Your Insurer Goes Under? - [link]

What companies are we talking about when we say companies on the edge?

So that we'll all be on the same plane, I've grouped some of the more well-known companies as follows:

  • APPROACHING THE EDGE: Fidelity Mutual?, Mutual of New York?, and Travelers?
  • AT THE EDGE: First Capital, Monarch Life, and Mutual Benefit.
  • OVER THE EDGE: Executive Life

--  Mark A. Davis

1992 - SOA - Companies on the Edge, Society of Actuaries - 20p

  • 1992 0218 - GAO - Insurance Regulation: The Failures Life Insurers of Four Large - 23p

  • 1992 - SOA - Companies on the Edge, Society of Actuaries - 20p
  • 1999 - SOA - Insurance Company Failures of the Early 1990s - Have We Learned Anything?, Society of Actuaries - 25p

  • 2013 - SOA - Comparative Failure Experience in the U.S. and Canadian Life Insurance and Banking Industries from 1980 to 2010, Society of Actuaries - 48p
  • Year?? - actuaries.org.uk - Working Party - Insurance Company Failure - 65P
  • FCIC Interviews Introduction - AIG
  • nolhga.com/factsandfigures///insolvencies
  • U.S. and Japan Life Insurers Insolvencies Case Studies: Lessons learned from resolutions, A Geneva Association research Report, Edited by Etti Baranoff - 52p
    • Appendix - Insolvencies 2008-2012 by country - p45
  • 2013 - Institute of Actuaries of Australia - Leadership and Life Insurance Failures – What can we learn about Financial Leadership? - 32p

Mr. Crume: (Staff Actuary) - re: the Missouri State Life Insurance Co. of St. Louis, Mo.

  • This company had approximately one billion of life insurance in force when it failed.
  • It held approximately $160,000,000 of premium payers and widows' and orphans' savings funds.
  • This is the largest serious failure of any old-line legal-reserve life-insurance company in the history of this country.
  • Its failure was preceded by manipulations involving numerous other insurance companies that leave one amazed when recited. (p4)

1936 – GOV – Investigation of Real Estate Bondholders’ Reorganizations – Part 20 - [BonkNote]

Mr. RUBINSTEIN. I refer the chairman to the case of Gordon v. United States Department of the Treasury, which is reported at 846 Federal Reporter 2nd, page 272, in which the priority issue was 31 U.S.C. section 3718.

  • The Gordon case is more fully reported at the District Court level at 668 Federal Supplement 483, where the court goes into some detail of the statute, but cites other case law in the area, including what is called the Royal Drug case by the United States Supreme Court, the issue being what is the business of insurance?

And the position being taken by these agencies is that the liquidation of an insurance company is not the business of insurance.

1988 0914 and 0915 - GOV (House) - Insurance Company Failures - [PDF-4xxp-GooglePlay, Video-?]

  • An interesting question arising in third-party guaranteed defaults is what happens when the guarantor collapses
  • When the letter-of-credit bank or insurance company goes under, or the corporate guarantor goes bankrupt, there is no more credit enhancement or guarantee on the bond issue.
  • In these instances bondholders usually lose.
  • Such was the case with the $1.6 billion of munis backed by Executive Life and the $600 million of housing issues backed by Mutual Benefit Life Insurance Company.  (p150)

-- C. Richard Lehmann, President - Bond Investors Association From 1994 "The Handbook of Municipal Bonds" Chapter 33: Municipal Bond Defaults

1995 0726 and 0727 - GOV (House) - Debt Issuance and Investment Practices of State and Local Governments - [PDF-968p

  • House - Committee on Banking and Financial Services - Subcommittee on Capital Markets, Securities, and Government Sponsored Enterprises