|Circular Letter No. 35 (1999)
November 24, 1999
|TO:||All licensed life insurers, fraternal benefit societies, charitable and segregated gift annuity societies, employee welfare funds, retirement systems, viatical settlement companies, governmental supplemental annuity funds, savings bank life insurance departments, accredited life reinsurers, property/casualty insurers, co-operative property/casualty insurers, financial guaranty insurers, mortgage guaranty insurers, reciprocal insurers, accident and health insurers, Article 43 Corporations, Public Health Law Article 44 health maintenance organizations, title insurers, the State Insurance Fund, the Medical Malpractice Insurance Association and accredited property/casualty reinsurers; all hereinafter referred to as "insurers".|
|RE:||Issues Regarding Liquidity and Asset/Liability Management|
|The State of Missouri recently placed General American Life Insurance
Company into administrative supervision. Subsequently, an auction process was conducted by
the Missouri Insurance Department, and the Board of Directors of General American agreed
to a sale of the insurer to the Metropolitan Life Insurance Company. These developments
stemmed from a debt and financial strength ratings downgrade by Moodys and an
ensuing spate of redemption requests on over $4 billion of funding agreements with
embedded put options issued by General American.
Under the terms of the funding agreements, investors, mainly professional money managers, held the option to exchange their contracts for the nominal cash value within seven days of the request. In the days following the rating agencys action and the redemption requests, it became clear that the funding liabilities were substantially shorter than their stated maturities. It also became evident that the assets General American had matched against the funding agreements were not sufficiently liquid to service the redemptions.
This situation highlights the need for enhanced asset/liability management (ALM) practices by insurers, and improved disclosure of the risks associated with options affixed to liabilities.
By this Circular Letter, this Department is requesting specific information from life insurers in order to assess their potential short term cash requirements and the liquid assets available to service these requirements. Furthermore, the Department is eliciting input from all insurers as regards the development of improved ALM practices and reporting by insurers. In the year 2000, the Department may be requiring enhanced reporting from insurers to facilitate better monitoring of liquidity risks deriving from asset/liability mismatches.
Life Insurers Pursuant to Section 308 of the New York Insurance Law, all licensed life insurers and accredited life reinsurers shall file with the Department a report, as of September 30, 1999, in the format of the attachment to this Circular Letter. The report shall be filed by December 31, 1999 and shall be signed by an officer of the insurer. An electronic version of the attachment, along with this Circular Letter, shall be posted on the Departments website (www.ins.state.ny.us). If an insurer submitting information pursuant to this Circular Letter deems such information to be a trade or business secret or contends that such information, if disclosed, would cause substantial injury to the competitive position of the insurer, it may, at the time the report is submitted, request that the Department except such information from disclosure. Such request shall be determined in accordance with the procedures set forth in Section 89(5) of the Public Officers Law and Insurance Department Regulation No. 71 (11 NYCRR 241).
The report from licensed life insurers and accredited life reinsurers should be submitted to:
All Insurers Other than the report to be filed by life insurers and accredited life reinsurers, no additional reporting will be required at this time. The Department is considering enhanced reporting for future financial statements filed by all insurers. The intent of this reporting will be to strengthen risk assessment capability. In addition, the Department will be reviewing the general area of insurer asset/liability management practices. The Department encourages input in this process.
Any such input can be directed to:
For ease of distribution and review, it is requested that the input regarding enhanced reporting and asset/liability management practices be sent via E-mail.
|Very truly yours,|
Superintendent of Insurance
to Circular Letter No. 35 (1999)
(in pdf Format)
ATTACHMENT TO CIRCULAR LETTER NO. 35
Is the maximum possible institutional cash demand by March 31, 2000 less than the cash and market value of United States Government Treasury Securities held by the company as of September 30, 1999?
If Yes, Tables One through Three need not be completed. Instead, skip to the Interrogatories following Table Three.
TABLE ONE Cash Demands (in thousands)
Footnotes to Table One:
TABLE TWO Cash Resources (in thousands)
Footnotes to Table Two:
TABLE THREE Largest Institutional Clients (in thousands)
Footnote to Table Three: