Life Insurers CAN Face Dangerous Runs: Fed Economists
June 25, 2019 by Allison Bell
Some life insurers’ deals with big, institutional clients could lead to sudden, dangerous demands for enormous amounts of cash, according to three economists at the Federal Reserve Board.
Nathan Foley-Fisher and two colleagues write, in an informal article published on the Fed website in May, that those life insurers could face spikes in demand for cash that would amount to deadly “runs on the insurance company.”
“A life insurer’s asset holdings are a potentially misleading benchmark for the magnitude of their nontraditional liabilities,” the economists write. “We argue that a benchmark for the size of a life insurer’s nontraditional liabilities should be based on the cash flows of that insurer.”