Systemic Risk - Actuarial

....life insurers face particular pressure owing to three characteristics of their business:

  • (1) they have the longest duration liabilities, i.e., permanent life insurance and long-term annuities,
  • (2) these are demand liabilities,
  • and (3) these lines have the highest asset leverage relative to capital. (p96)

Recognition of increased risk will require deleveraging of the life insurance business, as is occurring in other financial industries. (p96)

With private capital not forthcoming, it is likely the life insurance industry will join the banking industry (and perhaps other industries, e.g., auto manufacturers) and recapitalize through direct investment from the U.S. Treasury. (p97)

...we have to answer critics who would argue that had the industry been more risk-averse, it would not be verging on a bailout from
taxpayers. (p97)

This is a pivotal moment for the industry. The actuarial profession needs to be heard in several key areas:

  • 1. Determine whether the industry’s business model (i.e.,
    current products, investment practices, capital ratios,
    holding company leverage standards, etc.) is viable in
    view of ongoing capital market conditions. (p97)

Public markets doubt the viability of the life insurance industry’s business model. It is possible policyholders may someday follow suit. (p98)

-- An Industry in Question, A Profession with Answers. by James Ramenda, FSA, is managing director of Northington Partners Inc.,

2008 - SOA - Risk Management: The Current Financial Crisis, Lessons Learned and Future Implications, Society of Actuaries - 104p

  • Because of the lowest guaranteed benefits that universal insurance provide, regulators and scholars widely discuss the potential systemic risk posed by universal insurance. (p10) 
  • Academia generally believes that life insurance companies have more risks than property and casualty insurers. (p34)
  • In terms of liability management, the long-term liability of life insurance companies leads to the problem of long-term mismatch between their assets and liabilities and the increase in liquidity risk. (p34)

2020 - SOA - Systemic Risk in China's Insurance Industry, Society of Actuaries - 55p