• We define "runnables" as "pay-on-demand" transactions which embed defaultable promises made by private agents or state and local governments without explicit insurance from the federal government.

2015 0903 - FRB - The Runnables - [link]

A life insurance policy is not indentured servitude.

2014 0310 - Letter - Sheila C. Bair to Sherrod Brown - 6p

  • Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Financial Institutions and Consumer Protection
  • Re: Subcommittee Hearing: “Finding the Right Capital Regulation for Insurers”

The purpose of this chapter is to explain why the insurance sector may be a source for systemic risk.

In brief, we argue that the insurance industry is no longer traditional in the above sense and instead...

  • (i) offers products with non-diversifiable risk,
  • (ii) is more prone to “runs”,
  • (iii) insures against macro-wide events and (iv) has expanded its role in financial markets.

This can lead to the insurance sector performing particularly poorly in systemic states, that is, when other parts of the financial sector are struggling.

AP - Is the Insurance Industry Systemically Risky?, Viral V Acharya and Matthew Richardson - 24p

  • Vanderwiede
  • 2015 0325 - GOV - FSOC Accountability Nonbank Designations
    • [PDF-165pVIDEO-CSPAN -todo]
    • (p37/2:08) - Elizabeth Warren
      • I am all for increased transparency, but I assume the Council must balance transparency against disclosing confidential or potentially market-moving information.
  • Filing at holding co. level may, however, cause liquidity stresses at the insurance subsidiary level because of exposures to affiliates, and / or runs because of name aversion (risk of run mainly at the life insurance subsidiaries).

2008 0916 - FRB - Systemic Impact of AIG Bankruptcy attachment to FRBNY internal email from Alejandro LaTorre to Geithner - FCIC Records - 3p

  • 2015 0903 - FRB - The Runnables - [LINK]

  • 2015 - FRB - "Self-fulfilling Runs: Evidence from the U.S. Life Insurance Industry," Finance and Economics Discussion Series 2015-032. Board of Governors of the Federal Reserve System (U.S) - 52p
  • 2008 0912 - FCIC - FRB - Alejandro LaTorre Email to Geithner et al re Update on AIG - 2p <Not on web, need to upload>
    • They are also large issuers of annuities and have $11B of contingent exposure in their domestic retirement services business.
    • These are retail but run by large sponsors who could encourage accounts to put back the annuities in exchange for cash if they lose confidence in AIG.
    • These sponsors are U.S. banks who have exposure elsewhere.
    • This could be on top of the $18B payout above.
    • They have similar exposures in Japan but could not quantify the size.

  • Breakdown of the $18.6B is:
    Failed rolls on ABCP: $4.7B
    Collateral posting on Muni GICs: $6B
    Collateral posting on Structured Lease GICs: $3B
    Collateral posting in derivatives contracts: $5B

2017 0328 - GOV (House) - The Arbitrary and Inconsistent Non-Bank SIFI Designation Process - [PDF-83pVIDEO-youtube

  • What AIG did, in addition to its runnable securities-lending business, was get involved in a new industry or a new business, writing credit default swaps where it didn’t understand the risks posed in that business.
  • That is the kind of thing that a regulator is supposed to be able to step in and caution a firm that it should pay attention to. And I think that forgetting the lessons of AIG is unwise to the extreme.

--  David Zaring, Associate Professor, Legal Studies and Business Ethics, The Wharton School

  • As of 2012, 40.0 percent of the industry’s aggregate life insurance reserves and 12.5 percent of its total reserves were for universal life insurance (see table 1).
  • It is the most popular insurance product.

2013 - FRB-C - The Sensitivity of Life Insurance Firms to Interest Rate Changes - [link]

  • 2014 1218 - FSOC/MetLife - Basis For The Financial Stability Oversight Council’s Final Determination Regarding Metlife, Inc - 31p
    • 3.1 Transmission Channel Analysis (p15)
      • In light of MetLife’s size, leverage, interconnectedness with other large financial firms and financial markets, provision of products that may be surrendered for cash at the discretion of its institutional and retail contract holders and policyholders, and impediments to its rapid and orderly resolution, material financial distress at MetLife could have significant adverse effects on a broad range of financial firms and financial markets, and could lead to an impairment of financial intermediation or financial market functioning that could be sufficiently severe to inflict significant damage on the economy.
      • Accordingly, the Council has determined that material financial distress at MetLife could pose a threat to U.S. financial stability.
  • 2014 0909 - GOV (Senate) - Wall Street Reform: Assessing and Enhancing the Financial Regulatory System, aka Financial Regulatory System - [PDF-177pVIDEO-CSPAN]
    • (p24) Mr. TARULLO.
      • So, Senator, I guess I would draw a distinction between the creation of capital standards for traditional or current insurance activities, on the one hand, and an assessment of systemic risk on the other.
      • My own reading of the FSOC process with respect to Prudential and AIG is that there is not a lot of concern about the core insurance activities of those companies.
      • The concerns were with respect to some nontraditional insurance activities where runnability is more of a concern, and also with respect to things that are not insurance activities of any sort.
      • I think that is where the analysis would allow one to conclude there is systemic importance.
      • I personally do not think that the issue of whether there is systemic importance in traditional insurance activities has really been broached, and I am personally not sure we need to broach it.
      • I mean, my pretty strong presumption would be that there is not.

2014 0917 - GOV (House) - Oversight of the FSOC - [PDF-72p, VIDEO-youtube]


  • Governor Tarullo also noted that AIG and Prudential were designated as systemic not because of their core insurance activities but due to what he called ‘‘nontraditional insurance activities,’’ where runnability is more of a concern, and also with respect to things that are not insurance activities of any sort.
  • Do you agree with Governor Tarullo that to justify designating an insurance company as an SIFI that one would have to find that the company engages in activities that are not traditional insurance activities and that do pose systemic risk?


  • I haven’t had an opportunity to talk to Governor Tarullo regarding his testimony, but the analysis that was done for the insurance companies was company-specific rather than industry as a whole, and it was based on the size, leverage, and interconnections of those companies and how that makeup could transmit to the rest of the financial system.