For another, life insurance companies suffered large losses on a mark-to-market basis during the crisis from the decline in equity prices, as well as falling prices of mortgage and other fixedincome securities that were being sold by others facing immediate cash needs.

  • As a result, in early 2009, some had negative tangible equity value on a mark-to-market basis.
  • This was reflected in the price of their shares, which, on average, dropped 75% over the course of the crises.
  • A few applied for TARP assistance for additional capital.
  • But they faced little or no financial distress because their liabilities, principally obligations to make payment on policies, were long term.
  • They could and did wait for markets to return to more normal levels.  (p30)

2013 10 - Five Years Later: Lessons from the Financial Crisis - 67p

  • Moreover, given the long-term nature of life insurers’ obligations to their policy holders, they are exposed to substantial risk based on market fluctuations and turns in the economic cycle.
  • Thus, it could be easily argued that they need more, not less, capital than banks based on the long tail of their liability structure.  (p5)

2014 0310 - Letter - Sheila C. Bair to Sherrod Brown

  • ...universal life and investment-type products (collectively, investment-oriented products)..... (p53)

Update of Actuarial Assumptions

  • The life insurance companies review and update actuarial assumptions at least annually, generally in the third quarter.
  • Assumption setting standards vary between investment-oriented products and traditional long-duration products. (p123)

2018 - AIG Annual Report U.S. GAAP Example - Valuation of life and other long-term insurance liabilities

234. For insurance liabilities that are measured under U.S. GAAP as the net present value of cash flows using current or updated assumptions, the valuation of these items should be based on the Volunteer IAIG’s reported U.S. GAAP valuations.
235. For insurance liabilities that are valued using historical, locked-in assumptions (e.g. long-term insurance contracts measured according to ASC 944-30-7, formerly SFAS 60) or valued under a retrospective deposit method approach (e.g. universal life insurance contracts measured according to ASC 944-30-16, formerly SFAS 97) it will be necessary to adjust the liability utilizing the Gross Premium Valuation (GPV) approach as defined in loss recognition (premium deficiency) testing under U.S. GAAP ASC Topic 944-60.
236. The GPV is calculated by estimating the present value of future payments for benefits and related settlement and maintenance expenses less the present value of future gross premiums based on actual and anticipated experience. Projections may be based on a single best estimate scenario and may also include the impact of management actions, e.g., the current estimate of future premium rate increases (see section 6.3.12 on management actions). Any overhead
expenses would be excluded. The discount rate applied would be based on a current portfolio yield and expected reinvestment asset yields and cash flows. Gross rates would be reduced for expected defaults and investment expenses.

2015 Field Testing - Public Technical Specifications Page 54 of 230

7.5.2 Feedback from field testing

252. There is support from Volunteer Groups for an extension of management actions to include limited premium increases for certain business and product types, including Health business. Examples provided of other instances where the recognition of premium adjustments should be considered included yearly renewable term (YRT) premiums in certain long-term life reinsurance agreements, cost of insurance (COI) charges in certain long-term life insurance contracts, including universal life, and adjustable premiums on adjustable premium term life insurance. It was noted, though, that premium increase could lead to other policyholder actions such as increased lapses and possibly reputational risk.

IAIS - Risk-based Global Insurance Capital Standard Version
2.0 Public Consultation
31 July 2018 – 30 October 2018 Page 69 of 158