GAO: Financial Crisis Had Limited Effect On Policyholders

By Cyril Tuohy InsuranceNewsNet

By Cyril Tuohy

The effects of the 2008 financial crisis on insurers and policyholders were “generally limited,” but life insurers with variable annuities that include guaranteed living benefits and mortgage guaranty insurers were affected more than others, according to a report issued by the Government Accountability Office (GAO).

Losses sustained by life insurers were concentrated among a dozen or so companies, which accounted for 77 percent of the $52.2 billion in losses sustained in 2008. American International Group (AIG) accounted for 45 percent of the losses, the GAO report found.

“Several large insurers — particularly on the life side — experienced capital and liquidity pressure, but capital levels generally rebounded quickly,” the report said.

The report, which was delivered to a congressional subcommittee, is the first in-depth government study of how the insurance industry performed during the crisis. Net income for life insures rebounded from a loss of $52.2 billion in 2008 to a gain of $21.4 billion in 2009, the report found.

The report, which studied data from 2002 to 2011, also said that during the financial crisis, fewer than 1 percent of property-casualty and life insurance companies failed. From 2007 to 2009, there were more than 1,100 active individual life insurance companies, and more than 3,000 property-casualty companies.

The number of life insurance companies placed into receivership peaked at 12 in 2009, but the 10-year average of life carriers placed into receivership came to six a year. Life company liquidations also peaked in 2009 at six, but the 10-year average was four a year, the report found.

Actions by state and federal regulators, along with the National Association of Insurance Commissioners also helped to limit the impact of the crisis, the report noted.

State regulators were quick to share information with one another to “focus their oversight activities.” Tweaks to the amount of capital required by insurance companies to stay in business also helped mitigate the severity of the crisis.

“Finally, insurance business practices, regulatory restrictions, and a low interest rate environment helped reduce the effects of the crisis,” the report said.

The 91-page document was presented to Congressman Randy Neugebaurer, R-Texas, chairman of the Housing and Insurance Subcommittee.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].