• run-off
  • Firesale
  • For life insurers, the risk of a bank-like “run” resulting from loss of consumer confidence is virtually non-existent.

2016 0831 - Life Insurers Do Not Pose a Systemic Risk to the Nation’s Economy, BY DIRK KEMPTHORNE (President and Chief Executive Officer of the ACLI - [LINK]

  • The recent crisis, however, has brought a different sort of run on financial institutions, namely the withdrawal of short term credit and demand from other counterparties for collateral payments.
  • Such a “run” brought AIG down and other insurers might be vulnerable, although none have failed since AIG.

--   Baird Webel, Specialist in Financial Economics (Congressional Research Service

The Committee on Banking, Housing, and Urban Affairs
United States Senate, July 28, 2009, on Regulatory Modernization: Perspectives on Insurance

  • While insurers would benefit from an increase in interest rates through improved investment returns, a sudden, significant rate increase could present threats.
  • A sudden increase in general interest rate levels would increase unrealized losses in insurer fixed income portfolios and, at the same time, could prompt policyholders to surrender contracts for higher yield elsewhere.
  • In such a circumstance, insurers could be forced to liquidate fixed income investments at a loss in order to fund contract surrender payments.

2013 - FIO - Annual Report on the Insurance Industry - 53p

<Run vs Run-off>

(p98) - Exhibit 57: Equitable Life lapse rates 2000-2004

  • Lapse rates multiplied across all product lines between 2000 and 2004.
  • However, with maximum lapse rates between 10 percent and 15 percent it would be inappropriate to talk about an "insurance run”.

(p99) - Equitable Life has been in run-off for over 9 years, an orderly run-off of its portfolio.

  • There has been significant transfer of policies to other insurance companies and the impact on national pensioner income and GDP growth is marginal.

2010 - Geneva - Systemic Risk in Insurance—An analysis of insurance and financial stability - 129p

  • As interest rates soared in the mid-1970's, policyholders cashed in their conventional whole-life policies - which combine insurance coverage with savings - at a record rate, in order to put the cash in higher-paying investments or savings vehicles.
  • ''People started to question the whole-life concept when they had a return of 4 percent or 5 percent and savings accounts were earning interest in the double digits,'' said Franklin Maisano, the executive vice president of the Equitable Life Assurance Society of America.