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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
The Resolution of a Systemically Important Insurance Company during the Great Depression
Jonathan D. Rose
Abstract

This paper explores the economic issues related to systemically important insurance companies, using an example from the Great Depression, the National Surety Company. National Surety was a large and diverse insurance company that experienced a major crisis in 1933 due to losses from its guarantees of mortgage-backed securities. A liquidity crisis ensued, as policyholders staged a massive run on the company, demanding the return of their unearned premiums. The New York State Insurance Commissioner stepped in with a reorganization plan that split the company in two, out of fear that a disorderly liquidation would have systemic consequences given the sheer number of the company's counterparties, scattered all across the United States. A key dynamic of the crisis was that policy holders at an insurance company have a dual role as holders of liabilities and as providers of income.


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Jonathan D. Rose, The Resolution of a Systemically Important Insurance Company during the Great Depression, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2016-5, 05 Feb 2016.
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Subject headings:
Keywords: Insurance; great depression; surety; systemic importance
DOI: 10.17016/FEDS.2016.005
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