Sunday, September 20, 2009
Markets
Need for a “push” strategy
Lenders need to be convinced proactively
Providing information/training is key
Potential borrowers (looking to get access to a mortgage loan or looking for a larger loan) are willing to pay
more than what lenders perceive
Lenders need to be convinced proactively
Providing information/training is key
Potential borrowers (looking to get access to a mortgage loan or looking for a larger loan) are willing to pay
more than what lenders perceive
Regulation
An absolute prerequisite
A difficult and lengthy process
What comes first: the regulator or the operator
Is it possible to implement a new set of regulation over time? By regions?
Need to regulate who can provide mortgage insurance/guarantee
Need to regulate the reduced risk for the lender
of an insured loan
A difficult and lengthy process
What comes first: the regulator or the operator
Is it possible to implement a new set of regulation over time? By regions?
Need to regulate who can provide mortgage insurance/guarantee
Need to regulate the reduced risk for the lender
of an insured loan
Product
Need to be specifically design to
meet each specific circumstances
Crucial to share the risk
(partial coverage) initially
Creativity is required (gradual risk sharing,
capon portfolio, etc…)
meet each specific circumstances
Crucial to share the risk
(partial coverage) initially
Creativity is required (gradual risk sharing,
capon portfolio, etc…)
Impact
To early to measure the impact
New companies are viable in the
very short term
Investors could be mobilized for
MI companies in the most difficult
environment (Mali, Palestine)
Need a full economic cycle
to draw more definitive
conclusions
New companies are viable in the
very short term
Investors could be mobilized for
MI companies in the most difficult
environment (Mali, Palestine)
Need a full economic cycle
to draw more definitive
conclusions
OPPORTUNITIES
A clear priority in all countries
where we are working.
Clear recognition that the housing sector could be
an engine of economic growth & a factor of
social stability (India)
Huge housing needs (India, China, countries in transition)
Macro-economic conditions improving
(Inflation under control, rate of interest declining)
Strong lenders (India, Baltic States)
Better understanding of the need for a strong
primary market to develop a secondary market
Transition to market economy (Baltic States, Serbia)
Reduce need for government direct support
Need for standardization is well understood
where we are working.
Clear recognition that the housing sector could be
an engine of economic growth & a factor of
social stability (India)
Huge housing needs (India, China, countries in transition)
Macro-economic conditions improving
(Inflation under control, rate of interest declining)
Strong lenders (India, Baltic States)
Better understanding of the need for a strong
primary market to develop a secondary market
Transition to market economy (Baltic States, Serbia)
Reduce need for government direct support
Need for standardization is well understood
CHALLENGES
Legal/Regulatory framework sub-optimal
Foreclosure: an issue everywhere. Cultural sensitivity to the concept.
Title registration: complex, lengthy, costly or ineffective.
Lenders: No experienced lenders or just a few, limited appetite.
Long term resources: unavailable or very limited
Historic data: very limited or unavailable
Professional services for transaction: Credit Bureau,
Real Estate professionals, market analysis:
very limited everywhere.
Foreclosure: an issue everywhere. Cultural sensitivity to the concept.
Title registration: complex, lengthy, costly or ineffective.
Lenders: No experienced lenders or just a few, limited appetite.
Long term resources: unavailable or very limited
Historic data: very limited or unavailable
Professional services for transaction: Credit Bureau,
Real Estate professionals, market analysis:
very limited everywhere.
Possible Objectives for Mortgage Insurance in Emerging Economies
Increase access to housing finance
- Reduce down payment required
- Reach out the underserved borrower
Encourage lenders to lend
Increase level of home ownership
Standardize legal and lending practices
Deepen financial system – different types of lenders; broader access to
capital market
Impacts growth in : job creation; building materials; taxes;
personal wealth; financial & professional services
Develop new and resale housing markets
- Reduce down payment required
- Reach out the underserved borrower
Encourage lenders to lend
Increase level of home ownership
Standardize legal and lending practices
Deepen financial system – different types of lenders; broader access to
capital market
Impacts growth in : job creation; building materials; taxes;
personal wealth; financial & professional services
Develop new and resale housing markets
CMHC INTERNATIONAL INVOLVEMENT SO FAR
Lithuania
2001-2002
Training program on Mortgage
Insurance Market Analysis
Latvia
2002
Training program on Ml. Market
research on mortgage products
China
2001-on going
Feasibility study on the introduction
Ml
Serbia
2002-on going
Business plan for a National
Housing Agency
2001-2002
Training program on Mortgage
Insurance Market Analysis
Latvia
2002
Training program on Ml. Market
research on mortgage products
China
2001-on going
Feasibility study on the introduction
Ml
Serbia
2002-on going
Business plan for a National
Housing Agency
Mortgage Insurance
The Canadian Housing finance system is performing well.
An effective balance between private and public involvement.
Lending is done by private sector. Competition on a level
playing field between private and public sector for mortgage
insurance.
Mortgage Insurance played a key role in the development of
Housing Finance.
Mortgage insurance: an instrument of public policy.
An effective balance between private and public involvement.
Lending is done by private sector. Competition on a level
playing field between private and public sector for mortgage
insurance.
Mortgage Insurance played a key role in the development of
Housing Finance.
Mortgage insurance: an instrument of public policy.
MORTGAGE SYSTEM - US
1. Regional lending
2. 20,000 lenders – Banks, S&Ls,
mortgage banks
3. Segmented lending process
4. Amortization typically 15 & 30 years
5. Interest rate fixed for life of mortgage
or variable
6. Interest deductibility
7. Capital gains taxable
8. MBS major source of funds
9. FHA targets low income and avoids
competition
10. FHA covers 10% of new
residential mortgage loan
2. 20,000 lenders – Banks, S&Ls,
mortgage banks
3. Segmented lending process
4. Amortization typically 15 & 30 years
5. Interest rate fixed for life of mortgage
or variable
6. Interest deductibility
7. Capital gains taxable
8. MBS major source of funds
9. FHA targets low income and avoids
competition
10. FHA covers 10% of new
residential mortgage loan
Thursday, September 17, 2009
MORTGAGE SYSTEM
CANADA
1. National & Regional Lenders
2.200Lenders
3. Womb to tomb lending process
4. Variable Amortization – 5, 10, 15,
20, 25 years
5. Fixed interest rate term – 6 months to
5 years
6. No interest rate deductibility
7. Capital Gains not taxable
8. Funds primarily from deposit base,
9. CMHC competes with private
insurance
10. CMHC has a significant market share
1. National & Regional Lenders
2.200Lenders
3. Womb to tomb lending process
4. Variable Amortization – 5, 10, 15,
20, 25 years
5. Fixed interest rate term – 6 months to
5 years
6. No interest rate deductibility
7. Capital Gains not taxable
8. Funds primarily from deposit base,
9. CMHC competes with private
insurance
10. CMHC has a significant market share
MORTGAGE INSURANCE IN CANADA - Impact
Increased supply of funds by making mortgage lending
attractive
Increased mortgage market competition and reduced rates
Allowed government to withdraw from direct lending, interest
rate subsidies and Federal loan-loss guarantee
Zero capital required by lenders instead of 4% for non
insured loans
Standardized mortgage terms and conditions
attractive
Increased mortgage market competition and reduced rates
Allowed government to withdraw from direct lending, interest
rate subsidies and Federal loan-loss guarantee
Zero capital required by lenders instead of 4% for non
insured loans
Standardized mortgage terms and conditions
Wednesday, September 16, 2009
MORTGAGE INSURANCE IN CANADA - Product
Single up-front premium (between 0.5% and 3.75%
according to LTV). Typically added to the loan.
Universal access everywhere in Canada for same kind of
terms and conditions, for any kind of housing. Different for
private competitor.
More than 95% underwritten by EMILI
Mortgage Insurance Fund: operated on commercial and
actuarial basis, no cost to government. In line with risk
exposure and General Insurance Regulations
200 approved lenders: 6 dominant lenders
according to LTV). Typically added to the loan.
Universal access everywhere in Canada for same kind of
terms and conditions, for any kind of housing. Different for
private competitor.
More than 95% underwritten by EMILI
Mortgage Insurance Fund: operated on commercial and
actuarial basis, no cost to government. In line with risk
exposure and General Insurance Regulations
200 approved lenders: 6 dominant lenders
Tuesday, September 15, 2009
TYPICAL MORTGAGE PRODUCT IN CANADA
Roll over mortgage
Equal payment
Loan amortized up to 25 years
Interest rate fixed for term ranging from 6 months to 5 years
Mortgage insurance key pillar of system:
- Maximum loan without MI: 75% LTV
- Maximum loan with MI: 95%
Regulatory requirement for all loans above 75% LTV
Between 15% and 20% of units insured have an LTV<75%
Introduced in 1954 to encourage banks to lend and reduce
initial down payment
Protects lenders against all losses incurred as a result of
borrower default
100% coverage of losses (whole mortgage
outstanding balance + eligible expenses) for life
of mortgage
Equal payment
Loan amortized up to 25 years
Interest rate fixed for term ranging from 6 months to 5 years
Mortgage insurance key pillar of system:
- Maximum loan without MI: 75% LTV
- Maximum loan with MI: 95%
Regulatory requirement for all loans above 75% LTV
Between 15% and 20% of units insured have an LTV<75%
Introduced in 1954 to encourage banks to lend and reduce
initial down payment
Protects lenders against all losses incurred as a result of
borrower default
100% coverage of losses (whole mortgage
outstanding balance + eligible expenses) for life
of mortgage
Monday, September 14, 2009
US Government Resources for Companies Interested in Developing Housing Finance Programs in Africa
Overseas Private Investment Corporation (OPIC)
- Political risk insurance
- Currency convertibility insurance
- Project finance
USAID
- USAID programs through local missions
- Technical Assistance
- Development Credit Authority (DCA)
- Political risk insurance
- Currency convertibility insurance
- Project finance
USAID
- USAID programs through local missions
- Technical Assistance
- Development Credit Authority (DCA)
How the Public and Private Sectors Can Help Jump-Start Mortgage Lending
Credit Risk
- Introduction of loss-limit insurance programs with tiered risk
sharing; FHA (USA), SHF (Mexico)
Funding
- Second floor bank; FHLB (USA), FOVI (Mexico)
- Whole loan sale (Mali, possibly Uganda)
- For countries with developed primary market introduce bond
guaranty program; Ginnie Mae (USA)
- Introduction of loss-limit insurance programs with tiered risk
sharing; FHA (USA), SHF (Mexico)
Funding
- Second floor bank; FHLB (USA), FOVI (Mexico)
- Whole loan sale (Mali, possibly Uganda)
- For countries with developed primary market introduce bond
guaranty program; Ginnie Mae (USA)
Developing Countries Have Unique Housing Finance Needs
Mortgage design
Loan programs: Finished housing vs. incremental/rehab
housing (Mortgages vs. Micro-lending)
Managing credit risk
- Underwriting for informal sector applicants
- Comprehensive loan servicing
- Loss mitigation program
Funding
- Securitization not appropriate but deposits not adequate
- Loan sales
- Second floor banks
Loan programs: Finished housing vs. incremental/rehab
housing (Mortgages vs. Micro-lending)
Managing credit risk
- Underwriting for informal sector applicants
- Comprehensive loan servicing
- Loss mitigation program
Funding
- Securitization not appropriate but deposits not adequate
- Loan sales
- Second floor banks
Components of a Housing Finance System (con’t)
Credit risk management
- Underwriting
- Servicing
- Insurance
- Loss mitigation programs
Funding
- Deposits
- Loan sales
- Second floor banks
- Corporate debt, mortgage securities
- Underwriting
- Servicing
- Insurance
- Loss mitigation programs
Funding
- Deposits
- Loan sales
- Second floor banks
- Corporate debt, mortgage securities
Components of a Housing Finance System
The Basics
- Stable economy
- Enforceable property rights
- Legal system that allows efficient foreclosure and eviction
Retail operations
- Loan origination programs
- Loan products
- Branch network
- Stable economy
- Enforceable property rights
- Legal system that allows efficient foreclosure and eviction
Retail operations
- Loan origination programs
- Loan products
- Branch network
Why Housing Finance?
Gives households access to proper housing
Provides households with a means to acquire wealth
Significant component of an economy: 25%+ GDP in the
USA
Contributes to the development of retail banking
Provides source of long-term investments
Provides households with a means to acquire wealth
Significant component of an economy: 25%+ GDP in the
USA
Contributes to the development of retail banking
Provides source of long-term investments
United States – Africa Mortgage Market Initiative Guiding Principles
Engage the public and private sectors for market oriented solutions to
housing finance
Encourage limited government participation in the market.
Government should enable the private sector to lend, not compete
against it
Recognize that housing finance models from developed countries are
not completely transferable to developing countries
housing finance
Encourage limited government participation in the market.
Government should enable the private sector to lend, not compete
against it
Recognize that housing finance models from developed countries are
not completely transferable to developing countries
United States – Africa Mortgage Market Initiative
Announced by President Bush in July 2003
Goal: Help African countries develop sustainable primary, and if
possible secondary, mortgage systems
How is the USA helping?
- Refocus development policy toward housing finance
- Fund housing finance programs (USAID, OPIC)
- Technical assistance (Treasury, Ginnie Mae, Housing & USAID)
Engage the public and private sectors for market oriented solutions to
housing finance
Accomplishments to-date:
- 20 projects in nine countries.
- Projects include guarantees for the construction of housing, long-term
funding for mortgages and more importantly, technical assistance to
develop the legal framework and institutions needed for strong mortgage
markets
Goal: Help African countries develop sustainable primary, and if
possible secondary, mortgage systems
How is the USA helping?
- Refocus development policy toward housing finance
- Fund housing finance programs (USAID, OPIC)
- Technical assistance (Treasury, Ginnie Mae, Housing & USAID)
Engage the public and private sectors for market oriented solutions to
housing finance
Accomplishments to-date:
- 20 projects in nine countries.
- Projects include guarantees for the construction of housing, long-term
funding for mortgages and more importantly, technical assistance to
develop the legal framework and institutions needed for strong mortgage
markets
Sunday, September 13, 2009
Microfinance in the world today
10,000 MFIs manage a global portfolio of US$30 Billions
In a range from 150 US$ to 7,000 US$, the average loan size is US$ 450
150 Mio micro-credit active clients
300 Mio micro-saving active clients
50 Mio micro-insurance active clients
In a range from 150 US$ to 7,000 US$, the average loan size is US$ 450
150 Mio micro-credit active clients
300 Mio micro-saving active clients
50 Mio micro-insurance active clients
New trends
Development of MF in industrialized countries (e.g. Israel,
France, USA) thanks to the adaptation of the tools and
methodologies
Commercialization of the stakeholders
Use of new technologies as a new development tool
France, USA) thanks to the adaptation of the tools and
methodologies
Commercialization of the stakeholders
Use of new technologies as a new development tool
Microcredit Best practices (4/4): Key success factors
Methodology
Regular follow up
Requirement of good repayment for future access to a bigger loan
Local loan officers familiar with local culture
Adapted products and procedures
Small and short term credits
Repayment capacity assessment
Adapted collaterals / group solidarity guarantee
Business Development Services
Compensation for lack of education of loan beneficiaries
Regular follow up
Requirement of good repayment for future access to a bigger loan
Local loan officers familiar with local culture
Adapted products and procedures
Small and short term credits
Repayment capacity assessment
Adapted collaterals / group solidarity guarantee
Business Development Services
Compensation for lack of education of loan beneficiaries
Micro-credit Best practices (3/4 ): Interest Rate
Prejudices
The social mission should consist in a free loan
Interest Rate, perceived as a burden to the client
Reality
Micro-credits allow for the creation or expansion of an income generating activity and the generation of profit
Interest rates are no burden if the business plan is solid and good evaluation has been done
The social mission should consist in a free loan
Interest Rate, perceived as a burden to the client
Reality
Micro-credits allow for the creation or expansion of an income generating activity and the generation of profit
Interest rates are no burden if the business plan is solid and good evaluation has been done
Microcredit Best Practice (2/4 ) Repayment
Microfinance is not philanthropy!
Clients need to pay for the services
Microcredit clients need to repay the loans
Interest rate to cover the costs
Why is repayment important?
Offer new loans and extend the client base
Ensure correct functioning and growth of the institution
Cover office & operational costs
Cover for non-payments when they occur
Avoid financial loss and loss of credibility for the institution
REPAYMENT ON TIME GUARANTEES THE SUSTAINABILITY OF THE PROGRAM
Clients need to pay for the services
Microcredit clients need to repay the loans
Interest rate to cover the costs
Why is repayment important?
Offer new loans and extend the client base
Ensure correct functioning and growth of the institution
Cover office & operational costs
Cover for non-payments when they occur
Avoid financial loss and loss of credibility for the institution
REPAYMENT ON TIME GUARANTEES THE SUSTAINABILITY OF THE PROGRAM
Introduction to Microfinance: History
How did all start?
On the field Prof. Yunus saw that
Even poor people and women need loans
They can have an activity and repay
Set up financial institutions with
a social mission
Listen to the needs and constraints of the
excluded & offer them adapted financial tools to
empower themselves ( solidarity groups)
Spirit: SUSTAINABILITY
On the field Prof. Yunus saw that
Even poor people and women need loans
They can have an activity and repay
Set up financial institutions with
a social mission
Listen to the needs and constraints of the
excluded & offer them adapted financial tools to
empower themselves ( solidarity groups)
Spirit: SUSTAINABILITY
Microfinance Definition
Microfinance is the offer of financial & non-financial services to
people excluded from the traditional banking system.
The services are adapted to the needs of the target populations
Microfinance is a tool against poverty by enabling the beneficiaries to :
Create sustainable activities to increase their incomes
Reduce external shocks
Improve the living conditions of entrepreneurs and of their families
Empower people and mainly the women
people excluded from the traditional banking system.
The services are adapted to the needs of the target populations
Microfinance is a tool against poverty by enabling the beneficiaries to :
Create sustainable activities to increase their incomes
Reduce external shocks
Improve the living conditions of entrepreneurs and of their families
Empower people and mainly the women
Micro Finance
MICRO
Micro-entrepreneurs
Self-employed
Low income populations
Excluded populations
FINANCE
Business & educational loans
Savings
Micro-insurances
Remittances
Micro-entrepreneur training
Coaching & workshops on
health, hygiene, etc.
Micro-entrepreneurs
Self-employed
Low income populations
Excluded populations
FINANCE
Business & educational loans
Savings
Micro-insurances
Remittances
Micro-entrepreneur training
Coaching & workshops on
health, hygiene, etc.
Why are people excluded from certain financial services?
Lack collateral or guarantors
A bad credit history
Gap in the communication / lack of confidence in the Banks
Doubt of the bank of the repayment capacity
Lack of access to financial infrastructure and services in
remoted areas
WHAT IS THE ALTERNATIVE?
MICROFINANCE
A bad credit history
Gap in the communication / lack of confidence in the Banks
Doubt of the bank of the repayment capacity
Lack of access to financial infrastructure and services in
remoted areas
WHAT IS THE ALTERNATIVE?
MICROFINANCE
Saturday, September 12, 2009
NAIC Other Communication
Communication with Other US Regulators:
- Miscellaneous calls and meetings
- NAIC-hosted quarterly conference calls with federal
banking & thrift regulators
Communication with Non-US Ins. Regulators:
- Individual state Memoranda of Understanding
- NAIC Multilateral Memoranda of Understanding
- Ad hoc discussions, e.g., FAWG chair discussion
with EU regulator regarding mortgage guaranty ins.
Much of the concern with sharing information is confidentiality. Having these types of Memoranda agreements helps to relieve some of those concerns and allow more sharing of confidential information.
The NAIC developed a model MOU on information sharing with the EU. To date, agreements based on this Model MOU have been signed between Nebraska-Germany (BaFIN), California-Germany (BaFIN), Iowa-Netherlands; agreements have also been signed between Delaware-UK (FSA) and Delaware-Ireland. Several other states have draft agreements with EU jurisdictions.
- Miscellaneous calls and meetings
- NAIC-hosted quarterly conference calls with federal
banking & thrift regulators
Communication with Non-US Ins. Regulators:
- Individual state Memoranda of Understanding
- NAIC Multilateral Memoranda of Understanding
- Ad hoc discussions, e.g., FAWG chair discussion
with EU regulator regarding mortgage guaranty ins.
Much of the concern with sharing information is confidentiality. Having these types of Memoranda agreements helps to relieve some of those concerns and allow more sharing of confidential information.
The NAIC developed a model MOU on information sharing with the EU. To date, agreements based on this Model MOU have been signed between Nebraska-Germany (BaFIN), California-Germany (BaFIN), Iowa-Netherlands; agreements have also been signed between Delaware-UK (FSA) and Delaware-Ireland. Several other states have draft agreements with EU jurisdictions.
Ins. Regulator Communication
State-to-State Communication:
- Sharing of exam/analysis reports & findings
- Ad hoc discussions
NAIC Supported Avenues of Communication:
- FAWG presentation by domiciliary regulator
- NAIC database displays state decisions on change of control
requests (e.g., purchases of insurers)
- NAIC hosts interim meetings and conference calls between
states to discuss solvency or other concerns with individual
entities or groups (FAWG recommends)
FAWG presentation – domiciliary regulator addresses concerns, questions, recommendations of FAWG.
Form A database = decisions on change of control
NAIC Hosted Meetings: Other concerns, e.g., market conduct concerns (like AIG)
- Sharing of exam/analysis reports & findings
- Ad hoc discussions
NAIC Supported Avenues of Communication:
- FAWG presentation by domiciliary regulator
- NAIC database displays state decisions on change of control
requests (e.g., purchases of insurers)
- NAIC hosts interim meetings and conference calls between
states to discuss solvency or other concerns with individual
entities or groups (FAWG recommends)
FAWG presentation – domiciliary regulator addresses concerns, questions, recommendations of FAWG.
Form A database = decisions on change of control
NAIC Hosted Meetings: Other concerns, e.g., market conduct concerns (like AIG)
Coordinated Oversight
Coordination among State Insurance Regulators
- Financial statement disclosure of affiliated activities
(NAIC uniform format and electronic data capture)
Holding Company Organization Chart; material affiliated transactions
Investments in holding company entities
- Coordinated Analysis and Monitoring
Domiciliary states perform holding company analysis and coordinate with
other states as needed
- Coordinated Examination Option
Lead state(s) run the exam; other states rely upon this work
and/or participate
NAIC Exam Tracking Tool posts coordinated exam schedule and staff
and NAIC server hosts the online examination
Independent Function of Financial Analysis Working Group (FAWG):
Entity level analysis for “Nationally Significant Insurers”; advice to states
Group level analysis for large holding company systems
Analysis of events/situations that will materially impact the industry
Financial Statement Disclosure Notes:
Contains the Holding Company Org Chart (Schedule Y, Part 1); captures the material intercompany transactions (Schedule Y, Part 2)
All investment schedules have affiliated investment sections, as do the notes to financial statements;
The NAIC blank includes significant disclosure of affiliated transactions since those have historically been a common cause of solvency stress for regulated insurers.
Coordinated Examination Option:
Say “Option” because it is not a requirement or a given that a coordinated exam will be called.
Independent Function of FAWG:
Stress that this group is a peer review for the states’ analysis work; staffed only by experienced financial analysts
FAWG provides advice and recommendations to the states in performing their solvency oversight
If questioned about the Group Analysis, it is limited by what information we can get from the public disclosures or from other regulators
Example of Events that Materially Impact the Industry: subprime mortgage exposure review by FAWG.
- Financial statement disclosure of affiliated activities
(NAIC uniform format and electronic data capture)
Holding Company Organization Chart; material affiliated transactions
Investments in holding company entities
- Coordinated Analysis and Monitoring
Domiciliary states perform holding company analysis and coordinate with
other states as needed
- Coordinated Examination Option
Lead state(s) run the exam; other states rely upon this work
and/or participate
NAIC Exam Tracking Tool posts coordinated exam schedule and staff
and NAIC server hosts the online examination
Independent Function of Financial Analysis Working Group (FAWG):
Entity level analysis for “Nationally Significant Insurers”; advice to states
Group level analysis for large holding company systems
Analysis of events/situations that will materially impact the industry
Financial Statement Disclosure Notes:
Contains the Holding Company Org Chart (Schedule Y, Part 1); captures the material intercompany transactions (Schedule Y, Part 2)
All investment schedules have affiliated investment sections, as do the notes to financial statements;
The NAIC blank includes significant disclosure of affiliated transactions since those have historically been a common cause of solvency stress for regulated insurers.
Coordinated Examination Option:
Say “Option” because it is not a requirement or a given that a coordinated exam will be called.
Independent Function of FAWG:
Stress that this group is a peer review for the states’ analysis work; staffed only by experienced financial analysts
FAWG provides advice and recommendations to the states in performing their solvency oversight
If questioned about the Group Analysis, it is limited by what information we can get from the public disclosures or from other regulators
Example of Events that Materially Impact the Industry: subprime mortgage exposure review by FAWG.
US Supervision of Insurers
Supervision: Entity Level
State regulators’ legal authority and responsibility exist
at the individual entity level
Direct responsibility for the state’s consumers/citizens
Perform domiciliary entity (& holding company system as needed)
analysis quarterly; conduct exams a minimum of once every 5 years
Supervision: Holding Company System
Requires coordinated oversight with:
Other US state insurance regulators
Other US state and federal regulators
- Banking, Thrift, SEC, USDA, FEMA, FBIIC
Non-US insurance regulators
Transition from 1st Point (Entity Level Supervision) to 2nd Point (Holding Co. System):
However, since entities frequently become members of a holding company system, state insurance regulators must look beyond the entity level in performing their due diligence review of the domiciliary legal entity.
(FBIIC = Financial and Banking Information Infrastructure Committee, a group under the President’s Working Group on Financial Markets)
State regulators’ legal authority and responsibility exist
at the individual entity level
Direct responsibility for the state’s consumers/citizens
Perform domiciliary entity (& holding company system as needed)
analysis quarterly; conduct exams a minimum of once every 5 years
Supervision: Holding Company System
Requires coordinated oversight with:
Other US state insurance regulators
Other US state and federal regulators
- Banking, Thrift, SEC, USDA, FEMA, FBIIC
Non-US insurance regulators
Transition from 1st Point (Entity Level Supervision) to 2nd Point (Holding Co. System):
However, since entities frequently become members of a holding company system, state insurance regulators must look beyond the entity level in performing their due diligence review of the domiciliary legal entity.
(FBIIC = Financial and Banking Information Infrastructure Committee, a group under the President’s Working Group on Financial Markets)
US Group Wide Supervision
Role of the NAIC in US group wide supervision
Overview of US Supervision of Insurers
Coordinated Oversight Among State Insurance
Regulators
Communication Among Insurance Regulators
Communication with Other Regulators
With a Clearer understanding of the overall role of the
NAIC in state regulation, let’s look a little closer at
the NAIC role in US group wide supervision.
Overview of US Supervision of Insurers
Coordinated Oversight Among State Insurance
Regulators
Communication Among Insurance Regulators
Communication with Other Regulators
With a Clearer understanding of the overall role of the
NAIC in state regulation, let’s look a little closer at
the NAIC role in US group wide supervision.
SMI Work Plan – 5 Focus Areas
Capital Requirements
International Accounting
Insurance Valuation
Reinsurance
Group Regulation
International Accounting
Insurance Valuation
Reinsurance
Group Regulation
SMI Work Plan
Analyze other financial supervisory modernization initiatives, to the
extent appropriate. Analysis should include
the Basel II international capital framework for banks and
implementation in the U.S.;
solvency work by the International Association of Insurance
Supervisors (IAIS);
solvency proposals under consideration in other jurisdictions,
including Australia, Canada, Japan and the EU;
accounting standards being developed by the International
Accounting Standards Board (IASB).
As an on-going process, and as details emerge from the EU,
complete the analysis of EU/S2.
Identify areas for U.S. regulators to consider including in the current
NAIC programs.
extent appropriate. Analysis should include
the Basel II international capital framework for banks and
implementation in the U.S.;
solvency work by the International Association of Insurance
Supervisors (IAIS);
solvency proposals under consideration in other jurisdictions,
including Australia, Canada, Japan and the EU;
accounting standards being developed by the International
Accounting Standards Board (IASB).
As an on-going process, and as details emerge from the EU,
complete the analysis of EU/S2.
Identify areas for U.S. regulators to consider including in the current
NAIC programs.
Evolution of the U.S. Solvency System - NAIC
We have developed a detailed and uniform financial regulatory
system in the U.S.
In the 1990s we created risk-based capital requirements and
have continued to improve the formula over time, including
adding stochastic modeling and trend tests.
SAP was codified in 2001 into a comprehensive guide and has
continued to be updated & improved since.
We are placing greater emphasis on Governance through a
Model Audit Rule.
We are proposing to modernize Reinsurance & Principles-
Based Reserving
What is clear is that we have been continuously
improving U.S. insurance regulation for many
years.
What we have on our plates now is an investigation
of new ideas and an opportunity to create the
Gold Standard of Solvency Systems through the
Solvency Modernization Initiative (SMI)!
Long-term work plan – continuous evolution
The work we will do will not only be a
Gold Standard for our system, but will determine
how we respond to U.S. International Activities.
We will be looking inward, but also dialoguing outward.
system in the U.S.
In the 1990s we created risk-based capital requirements and
have continued to improve the formula over time, including
adding stochastic modeling and trend tests.
SAP was codified in 2001 into a comprehensive guide and has
continued to be updated & improved since.
We are placing greater emphasis on Governance through a
Model Audit Rule.
We are proposing to modernize Reinsurance & Principles-
Based Reserving
What is clear is that we have been continuously
improving U.S. insurance regulation for many
years.
What we have on our plates now is an investigation
of new ideas and an opportunity to create the
Gold Standard of Solvency Systems through the
Solvency Modernization Initiative (SMI)!
Long-term work plan – continuous evolution
The work we will do will not only be a
Gold Standard for our system, but will determine
how we respond to U.S. International Activities.
We will be looking inward, but also dialoguing outward.
Accreditation Program
Financial Regulation Standards & Accreditation Program
Ensures baseline financial regulatory processes and practices in
each accredited state
Generates savings to the states and industry, through regulatory
reliance placed on accredited states
Reduces duplication of financial regulatory processes by setting
baseline expectations
Without the program, financial solvency regulatory processes and
costs would increase exponentially
States might not rely on each other to regulate licensed companies
domiciled in other states
Would result in millions of dollars in examination costs to the industry
Ensures baseline financial regulatory processes and practices in
each accredited state
Generates savings to the states and industry, through regulatory
reliance placed on accredited states
Reduces duplication of financial regulatory processes by setting
baseline expectations
Without the program, financial solvency regulatory processes and
costs would increase exponentially
States might not rely on each other to regulate licensed companies
domiciled in other states
Would result in millions of dollars in examination costs to the industry
Outside of the NAIC
State legislatures and state insurance
departments create and implement state laws
and regulations.
State insurance departments are charged with
the insurance regulatory functions.
Deviations from NAIC
departments create and implement state laws
and regulations.
State insurance departments are charged with
the insurance regulatory functions.
Deviations from NAIC
NAIC Provides.....
Provide state insurance departments services and
support in the areas of:
- financial, actuarial, legal, technology, research,
market conduct and economic expertise.
NAIC maintains a Technology Center that houses ten
years of history for over 5,200 insurance companies,
and 4,000,000 insurance agents accessible by over
13,000 state insurance regulators via the internet or a
high speed, dedicated frame relay network.
Also provide information via the internet to consumers,
insurance industry and federal regulators.
support in the areas of:
- financial, actuarial, legal, technology, research,
market conduct and economic expertise.
NAIC maintains a Technology Center that houses ten
years of history for over 5,200 insurance companies,
and 4,000,000 insurance agents accessible by over
13,000 state insurance regulators via the internet or a
high speed, dedicated frame relay network.
Also provide information via the internet to consumers,
insurance industry and federal regulators.
The NAIC at Work
Committee Structure
Financial Solvency Initiatives
Model Laws and Regulation Development
Regulator and Consumer Education
State Accreditation Program
Regulatory Insurance Databases & Computer
Systems
IT Systems (data filing, licensing, rate/form
filings, & more)
Financial Solvency Initiatives
Model Laws and Regulation Development
Regulator and Consumer Education
State Accreditation Program
Regulatory Insurance Databases & Computer
Systems
IT Systems (data filing, licensing, rate/form
filings, & more)
NAIC
Created in 1871 by state insurance regulators to
address the need to coordinate regulation of multi-state
insurers.
NAIC members are the state insurance commissioners.
NAIC members have regulatory authority, but the NAIC
organization does not. NAIC staff provide immense
support to the U.S. insurance regulators who execute
state-based insurance regulation.
The NAIC provides a forum for the development of
uniform policy, including model laws and regulations,
financial reporting and RBC requirements.
address the need to coordinate regulation of multi-state
insurers.
NAIC members are the state insurance commissioners.
NAIC members have regulatory authority, but the NAIC
organization does not. NAIC staff provide immense
support to the U.S. insurance regulators who execute
state-based insurance regulation.
The NAIC provides a forum for the development of
uniform policy, including model laws and regulations,
financial reporting and RBC requirements.
Stock Tips for 2009
If you want to be make big bucks in
the last half of 2009, you may want
to be aware of the mergers that are
being predicted.
Polygram Records, Warner
Brothers, and Zesta Crackers will
join forces and become:
Polly Warner Cracker
3M will merge with with Goodyear
and will be known as:
MMMGood
Zippo Manufacturing, Audi Motors,
Dofaco, and Dakota Mining will
merge and become:
ZipAudiDoDa
FedEx is expected to join its major
competitor, UPS, and become:
Fed Up
Grey Poupon and Docker Pants are
expected to become:
Poupon Pants
Fairchild Electronics and Honey Well
is scheduled to become:
Fairwell Honeychild
the last half of 2009, you may want
to be aware of the mergers that are
being predicted.
Polygram Records, Warner
Brothers, and Zesta Crackers will
join forces and become:
Polly Warner Cracker
3M will merge with with Goodyear
and will be known as:
MMMGood
Zippo Manufacturing, Audi Motors,
Dofaco, and Dakota Mining will
merge and become:
ZipAudiDoDa
FedEx is expected to join its major
competitor, UPS, and become:
Fed Up
Grey Poupon and Docker Pants are
expected to become:
Poupon Pants
Fairchild Electronics and Honey Well
is scheduled to become:
Fairwell Honeychild
529 Saving for College
Parents and
grandparents can
save large amounts -
- $250,000 per
beneficiary.
Allowed to grow and
compound tax free.
Funds are considered
to be a student asset -
- helps for financial
aid.
Use for qualified
educational expenses
such as
Tuition
Fees
Room and board
grandparents can
save large amounts -
- $250,000 per
beneficiary.
Allowed to grow and
compound tax free.
Funds are considered
to be a student asset -
- helps for financial
aid.
Use for qualified
educational expenses
such as
Tuition
Fees
Room and board
Saver’s Credit
The credit is available to
you if you:
are 18 or older, and
are not a full-time
student, and
are not claimed as a
dependent on
someone else's return,
and
Limited to $1,000 per
person
Available for contributions
to
401(k)
403(b)
Other qualified
accounts
you if you:
are 18 or older, and
are not a full-time
student, and
are not claimed as a
dependent on
someone else's return,
and
Limited to $1,000 per
person
Available for contributions
to
401(k)
403(b)
Other qualified
accounts
401(k) and 403 (b) Plans
Salary reduction plan
- - pay no state or
federal income tax on
the amount deferred.
The employer deducts
2% to 10% percent of
your salary according to
your wishes.
May invest in:
Stock funds
Bond funds
Index funds
Pay taxes when you
make withdrawals at
retirement.
Pays out in a
Lump sum or
Monthly withdrawal
Penalty for early withdrawal.
Ask your human
resources office for
information.
- - pay no state or
federal income tax on
the amount deferred.
The employer deducts
2% to 10% percent of
your salary according to
your wishes.
May invest in:
Stock funds
Bond funds
Index funds
Pay taxes when you
make withdrawals at
retirement.
Pays out in a
Lump sum or
Monthly withdrawal
Penalty for early withdrawal.
Ask your human
resources office for
information.
Investment situations
1. You have $5,000 to invest. No other
information is available.
2. You have $4,000 that you’ll need six
months from now.
3. You inherited $10,000 from your great-aunt
who had suggested that you save it for your
old age.
4. You want to save for a 15-year-old’s future
college education.
5. You are just starting a career and can save
$50 per month for retirement.
information is available.
2. You have $4,000 that you’ll need six
months from now.
3. You inherited $10,000 from your great-aunt
who had suggested that you save it for your
old age.
4. You want to save for a 15-year-old’s future
college education.
5. You are just starting a career and can save
$50 per month for retirement.
The Savings Game
Your have $5,000 to invest. What is the
best choice for you?
Alternatives
Mattress
Savings Account
Certificate of Deposit
U.S. Government Savings Bonds
Money Market Mutual fund
Stocks
Stock Market Mutual fund
best choice for you?
Alternatives
Mattress
Savings Account
Certificate of Deposit
U.S. Government Savings Bonds
Money Market Mutual fund
Stocks
Stock Market Mutual fund
Forms of saving and investing
Savings accounts: provide a small but
steady return
Certificates of deposit: very safe, but
instant access carries a penalty.
Bonds: lending money to a corporation or
government, with higher return than bank
savings and CDs.
Stocks: part ownership in a company,
with higher risks and returns.
Real estate: the risks and benefits of
being a landlord.
steady return
Certificates of deposit: very safe, but
instant access carries a penalty.
Bonds: lending money to a corporation or
government, with higher return than bank
savings and CDs.
Stocks: part ownership in a company,
with higher risks and returns.
Real estate: the risks and benefits of
being a landlord.
Rules for Improving Your Financial Life
Rule 1 Get a good
education
Rule 2 Live below
your means
Rule 3 Save early
Rule 4 Buy and
hold common
stocks for the long
term
Rule 5 Diversify
Other Tips
Learn money-
management skills
Get married and
stay married
education
Rule 2 Live below
your means
Rule 3 Save early
Rule 4 Buy and
hold common
stocks for the long
term
Rule 5 Diversify
Other Tips
Learn money-
management skills
Get married and
stay married
Mutual Funds
Mutual funds pool investors’
savings.
In effect, you own small amounts of
many different assets.
This is an example of diversifying.
savings.
In effect, you own small amounts of
many different assets.
This is an example of diversifying.
Diversify
That means to take on many
small risks rather than one
large risk.
Any one stock or other asset
can easily lose money!
But holding a variety of assets
protects you against the risk
that any one asset would lose
money.
small risks rather than one
large risk.
Any one stock or other asset
can easily lose money!
But holding a variety of assets
protects you against the risk
that any one asset would lose
money.
Characteristics of Millionaires
They live below their means.
Live in modest homes.
Drive used cars.
Shop at stores that offer good value.
They invest heavily in their
children’s education - - and not more than that.
They spend time on financial planning.
Live in modest homes.
Drive used cars.
Shop at stores that offer good value.
They invest heavily in their
children’s education - - and not more than that.
They spend time on financial planning.
Investing In Stocks
If you want to be a millionaire, should you avoid the risky stock market ?
False.
Nearly 95% of millionaires own stocks.
Since 1926, stocks have increased 10%
at a compounded, annual rate of return.
10% return exceeds any other type of
investment.
Investing is stocks, however, does involve risk.
False.
Nearly 95% of millionaires own stocks.
Since 1926, stocks have increased 10%
at a compounded, annual rate of return.
10% return exceeds any other type of
investment.
Investing is stocks, however, does involve risk.
The Magic of Compounding
When you save, you get interest.
When you take the interest out and
spend it, it stops growing.
But if you leave the interest in so it
can grow you start to earn interest
on the interest you earned.
Interest on interest is money you
didn’t work for – your money made
it for you!
When you take the interest out and
spend it, it stops growing.
But if you leave the interest in so it
can grow you start to earn interest
on the interest you earned.
Interest on interest is money you
didn’t work for – your money made
it for you!
Small Savings Can Make A Difference
At age 18, you decide not buy a latte and a muffin each day.
You invest this $5.00 a day at 8% annual interest until you are 65.
At age 65, your savings from not smoking is over $900,000.
True.
$931,735
Because of the power of compound
interest, small savings can make a
difference.
8% is the annual return of a mutual
fund.
It pays to resist temptation and live
below your means.
You invest this $5.00 a day at 8% annual interest until you are 65.
At age 65, your savings from not smoking is over $900,000.
True.
$931,735
Because of the power of compound
interest, small savings can make a
difference.
8% is the annual return of a mutual
fund.
It pays to resist temptation and live
below your means.
Do The Most millionaires work in glamorous jobs, such as sports, entertainment, or high tech?
False.
Most millionaires work in ordinary
jobs.
Types of businesses include:
welding contractors
owners of mobile-home parks
paving contractors
Most millionaires work in ordinary
jobs.
Types of businesses include:
welding contractors
owners of mobile-home parks
paving contractors
Do more millionaires drive Cadillacs than Fords ?
False.
Ford is preferred by 9.4% of
millionaires.
Cadillac is preferred by 8.8%.
Lincoln is preferred by 7.8%.
Only 23% of millionaires drive a
current year (new) car.
Ford is preferred by 9.4% of
millionaires.
Cadillac is preferred by 8.8%.
Lincoln is preferred by 7.8%.
Only 23% of millionaires drive a
current year (new) car.
Most millionaires are college graduates
True.
4 of 5 millionaires are college
graduates.
18% of millionaires have Master’s
Degrees.
8% have law degrees.
6% have medical degrees.
6% have Ph.Ds.
4 of 5 millionaires are college
graduates.
18% of millionaires have Master’s
Degrees.
8% have law degrees.
6% have medical degrees.
6% have Ph.Ds.
Wealth is measured by comparing assets and liabilities
People think an individual with assets valuing a million dollars or more is considered
to be a millionaire.
Is This True?
False.
Wealth is measured by comparing assets and
liabilities.
Assets are the values of what an individual
owns: home, car, savings, cash value of life
insurance, and so forth.
Liabilities are the money an individual owes:
mortgage, car loan, credit card debt and so
forth.
The difference between an individual’s assets
and liabilities is called net worth.
to be a millionaire.
Is This True?
False.
Wealth is measured by comparing assets and
liabilities.
Assets are the values of what an individual
owns: home, car, savings, cash value of life
insurance, and so forth.
Liabilities are the money an individual owes:
mortgage, car loan, credit card debt and so
forth.
The difference between an individual’s assets
and liabilities is called net worth.
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