Mass Lapse

  • Legal Case - Walker vs Life Insurance Company of the Southwest
    • Survey - 50%
  • Unfortunately, some offices issued these contracts with a cash value of something approaching the total single premium guaranteed at any time.
  • Interest rates rose, competitors offered better terms, and so there was a severe risk of mass surrenders, which no investment could have matched.

-- CHARLES M. O'BRIEN - Mr. O'Brien, not a member of the Society, is a Fellow of the Institute of Actuaries and is actuary and manager, Royal National Pension Fund for Nurses, London, England

1974 - EXPANDING THE ACTUARY'S HORIZONS IN THE MANAGEMENT OF INVESTMENTS FOR LONG-RANGE RISKS, Society of Actuaries - 58p

  • ICS shocks are 30% for retail and 50% for non-retail.
  • These shocks seem appropriate for a stress test (p9)

2016 - IAIS Survey - International Actuarial Association = Public Compiled Comments on Risk-based Global Insurance Capital Standard Version 1.0 - Public Consultation Document
19 July 2016 – 19 October 2016 - 34p

  • The experience during the Global Financial Crisis (GFC) and at other times appears to suggest that mass lapse bank-like runs on insurers, are rare, and did not occur in the GFC.
  • Such events are less likely to be significantly related to product features 2016 than to psychological, economical and stay driven features.
  • For instance, if there is a general loss of confidence in the insurance market, in a particular insurer, or a severe need for cash, policyholders may flee regardless of their surrender strain position.

2016 - IAIS Survey - NAIC - Public Compiled Comments on Risk-based Global Insurance Capital Standard Version 1.0 - Public Consultation Document - 19 July 2016 – 19 October 2016 - 34p

  • While reputation risk can be a highly likely trigger for mass surrenders, it is not linked to product features.
    • Insurance Europe (p24)
  • An application only to those policies which are adversely affected would not be appropriate. A mass lapse event may be triggered in particular by bad news / rumours in mass media / social media...
    • GDV - Gesamtverband der Deutschen Versicherungswirtschaft - Germany (p24)
  • Mass lapses represent a reputational risk or “run on the bank” risk, not economic decision-making by policyholders.
    • MetLife (p26)
  • When a mass lapse occurs, policyholder behavior is NOT likely to consider whether it will harm the company or not.
    • MassMutual (p27)
  • When confidence is lost, policyholders will leave the company regardless of their surrender strain position. (p30)
    • American Academy of Actuaries

2016 - IAIS Survey - International Actuarial Association - Public Compiled Comments on Risk-based Global Insurance Capital Standard Version 1.0 - Public Consultation Document - 19 July 2016 – 19 October 2016 - 34p

  • While reputation risk can be a highly likely trigger for mass surrenders, it is not linked to product features. - Insurance Europe -  (p24)

2016 - IAIS Survey - Public Compiled Comments on Risk-based Global Insurance Capital Standard Version 1.0 - Public Consultation Document - 19 July 2016 – 19 October 2016 - 34p