• EVALUATION OF THE ADEQUACY OF THE MSVR FOR EXISTING PURPOSES
• Industry experience indicates that the increase in policy lapses and surrenders follows closely behind a rising trend in policy loans.
  • During 1982, policy surrenders ran well above the 1981 level.
  • This development poses the threat of another liquidity drain reminiscent of 1980.
  • The rise in surrenders appears to stem partly from the current economic recession and partly from policy replacement.
• ⇒  Many insurance executives are concerned about the possibility that newer forms of life insurance products--universal and variable life--once their tax status has been clearly settled, could be sold in such large volume that they replace a large share of traditional whole life policies, thereby causing severe liquidity drains for companies that cannot or do not undertake adequate defensive measures.
• The danger of having to sell large volumes of bonds at depressed market values is a recurring specter for these executives.
• The prospective volatility of future interest rates stemming from the Federal Reserve's new monetary procedures poses another threat to life insurers in the years ahead.
• The potential for increased volatility could involve interest rate "spikes" which cause policyholders to accelerate the volume of policy loans and to withdraw or withhold their pension contributions to life insurance companies.
• The events of 1980 when policy loans, surrenders, the shortfall of pension inflows, and scattered withdrawals of employee benefit funds forced sizeable borrowings and even some asset liquidations to meet the drain are not necessarily a unique set of circumstances.

1983-2, NAIC Proceedings - Securities and Insurance Regulation (EX) Task Force