ACLI - Run - Disintermediation

  • The year certainly tested the ACLI leadership. Frank Keating, its president and CEO, related the many actions he and his team took to work with federal officials to provide some level of support for affected life companies.
    • "The thing that concerned us, because we did not have an FDIC behind us, we have a system of guaranty funds in the states, if there were a run on life insurance companies, what would that do to us as an industry?
    • Because we were state-regulated, we were very concerned, if not alarmed, that the Fed, the FDIC, perhaps the SEC, obviously the Treasury Department, might have a high level of ignorance and not appreciate that individual companies within our industry may not be systemic, but we as an industry are."

2009 1026 - InsuranceNewsNet - Relieved to Have Survived a Dangerous Year, ACLI Members Look Ahead, By Ron Panko, senior associate editor, Best's Review - [link]

  • (p34) - 1:58:00
    • Richard Shelby (R-AL) - Would you discuss the likelihood of a so-called run on insurance products such as life insurance and what such a run would have to look like in order to cause systemic risk?
    • Gary Hughes, ACLI - I know one of the dissents to one of the designations pointed out, quite correctly, that insurance regulators have the absolute authority to prevent people from turning in their policies, if that is warranted.
      • But I think the experience of the recent economic crisis is very telling in this respect.
      • In fact, it was just the opposite of a run.
      • The products were so desirable in terms of the guarantees they made that, notwithstanding the crisis, people were holding onto those products no matter what.

2015 0325 - GOV (Senate) - FSOC Accountability Nonbank Designations, Richard Shelby (R-AL)  ---  [BonkNote]

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

2016 0831 - ACLI - 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]

  • Clearly, the designations of insurers were largely dependent on banking expertise, not insurance expertise.
    • FSOC’s decisions with regard to insurers were bank-centric and not grounded in an accurate understanding of the business of insurance.
    • Life insurers are fundamentally different from banks.
    • FSOC’s reliance on an inappropriate and unrealistic bank-like “run” scenario on insurance products as the trigger of an insurer’s financial distress or cause of systemic risk illustrates its bank-centric mindset for considering insurance firm designations.
    • Dick Kempthorne, 

2017 0502 - Letter - ACLI to GOV (House) - Jeb Hensarling, House Committee on Financial Services - re H.R. 10 - Financial Choice Act of 2017 - 4p

  • 2020 / 2021 - IAIS - Resolutions to Public Consultation Comments on Development of Liquidity Metrics: Phase 1 – Exposure Approach, 9 November 2020 – 9 February 2021 - 106p
    • 2020 - IAIS - Development of Liquidity Metrics - Phase I - Exposure Approach  ---  [BonkNote]
    • Q11 Do you agree with the treatment of liquidity risk from surrenders and withdrawals from insurance products in the ILR? If not, please explain how this could be improved.
    • 235. ACLI - American Council of Life Insurers: - NO
      • The Consultation seems to acknowledge that the protection purpose for which a policy is purchased plays an important role in the risk of surrender, yet the methodology contains no classification by product type that would incorporate this important factor.
      • This would need to be remedied if the ILR is to provide a meaningful assessment of an insurer’s liquidity risk.
      • Likewise, we recommend that the IAIS establish separate, factors for cash value life insurance products and annuity contracts.
      • ...“run on the bank" scenario. In such an extreme scenario, insurers could exercise their contractual rights to delay payment, as by a matter of practicality companies are not set up to process such high volumes in a similar time frame as they would in the ordinary course.
  • 16 The application of a capital cushion makes more sense in banking than it does in insurance, because the concept of a capital buffer in bank capital rules recognizes that a bank’s capital position is subject to great volatility due to a bank’s susceptibility to runs that is embedded in the banking business model (i.e., demand liabilities backed by less liquid assets), which creates the risk of a fire-sale of assets in the wake of a run. Insurance liabilities are much longer-term than banking liabilities, and thus much less liquid than banking ideas, and insurers match their assets and liabilities in duration. As a result, some have suggested that the capital conservation buffer should apply only to the insured depository institution. (Page 5 of 17)

2020 0122 - Letter - ACLI to FRB - Re: Comments on Docket No. R-1673; RIN 7100-AF 56, Regulatory Capital Rules: Risk Based capital Requirements for Depository Institutions - 17p