Liquidity - Policy Loans

<ACLI> Re: Policy Loan Developments of 15 Life Insurance Companies

  • The purpose of the meeting was to discuss concerns about the liquidity conditions and the possibilities of future adverse developments.
  • The company people wanted to be sure that Mr. Volcker  <Chairman of the Federal Reserve> was fully aware of the potentials of the situation and to arrange a liaison between his staff and the staff of the Council and this aim was accomplished.
  • In the meantime, we have begun to explore the means by which the resources of the business might be applied to alleviate any temporary extreme liquidity problems that might arise for a particular member company.

1980-2, NAIC Proceedings

For example, the survey of 15 insurers conducted by the Council shows that during the first 4 months of 1981, gross loans made averaged slightly more than $600 million per month, somewhat less than the same period in 1980 but substantially higher than the same period in 1979.

  • These periodic spurts of borrowing have caused serious problems for life insurers, their policyholders and the economy.
  • Enactment of the model bill by the states should alleviate these problems in the future.

1981-2, NAIC Proceedings

MR. BELTH: Before you sit down, John, let me ask you a question.

  • Rumor has it that there were some extensive discussions between highly placed life insurance officials and officials of the Federal Reserve in April, 1980.
  • Would you care to discuss exactly what the nature of those conversations was?

MR. BOOTH <ACLI>: I was not present.

  • There were some discussions; as you know, in the Spring there was a policy loan crunch.
  • There have been discussions held periodically as far back as 15 to 20 years.

MR. BELTH: I raise the question whether the disintermediatlon problem could conceivably become so serious as to threaten the viability of the life insurance industry and force some kind of unilateral governmental action in order to save, or literally bail out, the industry.

  • One incident that I recall which somehow has been blacked out of most textbooks was when the NAIC (it was then the NCIC) allowed life insurance companies to change their valuation rules for just one year.
  • Was it 1932?

1981 - SOA - The Life Insurance Business--The View of Consumerists, Society of Actuaries (rsa81v7n38) - Daniel F. Case - Moderator - 18p

<Bonk:  Referencing ->???

  • Further Resolved, That inasmuch as a number of worthy industrial and commercial corporations are in emergency receivership and a number of corporate bonds are in default as to interest and/or principal by reason of lack of liquidity rather than by reason of lack of underlying value, stocks of corporations in receivership and bonds in default should be valued on the 1931 Convention basis less 30 per cent of the difference between such Convention value and the exchange quotation as of December 1, 1932, unless the value underlying such securities has been heavily depleted or has disappeared to such an extent that a lower value is required by reason of such special circumstances. (p8)
  • The Committee on Valuation of Securities

1933-1 volume only, NAIC/ NCIC