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The Resolution of a Systemically Important Insurance Company during the Great Depression

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  • 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.

Suggested Citation

  • Jonathan D. Rose, 2016. "The Resolution of a Systemically Important Insurance Company during the Great Depression," Finance and Economics Discussion Series 2016-5, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2016-05
    DOI: 10.17016/FEDS.2016.005
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    References listed on IDEAS

    as
    1. Scott E. Harrington, 2009. "The Financial Crisis, Systemic Risk, and the Future of Insurance Regulation," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(4), pages 785-819, December.
    2. Ernest M. Fisher, 1951. "Urban Real Estate Markets: Characteristics and Financing," NBER Books, National Bureau of Economic Research, Inc, number fish51-1.
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    More about this item

    Keywords

    Insurance; great depression; surety; systemic importance;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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