Equity Markets Plunge Near Bear Market Territory

Link: https://content.naic.org/sites/default/files/capital-markets-hot-spot-equity-markets-may2022.pdf



On May 19, the S&P 500 opened the day near bear market territory; i.e., at a 20% drop from a recent
high. On May 18, the S&P 500 experienced a 4% decline—the largest single-day decrease since June 2020. The last time the S&P 500 entered bear market territory was in March 2020, albeit short-lived, as
the market turned around and headed into a two-year rally that peaked in early January 2022.

The current equity market losses (and some corporate bond losses) are primarily the result of several
factors: 1) earnings reports from large American retailers, including Walmart and Target, show evidence
that the continued high inflation rate may be affecting consumer demand; 2) the war in Ukraine has
added to inflationary pressures, prompting the Federal Reserve (Fed) to increase interest rates and
reduce bond holdings; and 3) recent COVID-19 shutdowns in China have led to a slowdown in the
world’s second largest economy.

Author(s): Jennifer Johnson and Michele Wong

Publication Date: 19 May 2022

Publication Site: NAIC Capital Markets Special Report

Decentralized Finance for Actuaries

Link: https://www.soa.org/resources/research-reports/2022/decentralized-finance/



Decentralized finance, or DeFi, is an emerging financial system powered by blockchain technology. This research report aims to introduce actuaries to DeFi and help them develop a solid understanding of DeFi. It will begin with addressing “what is DeFi?” by providing an introduction on blockchains and DeFi. It will then discuss in further detail the key characteristics, applications, opportunities, and risks of DeFi. After providing the foundation, this report will discuss the potential adoption of DeFi and its interaction with the current financial system (sometime referred to as traditional finance for contrast with DeFi), and the implications for practicing and aspiring actuaries. In addition, a glossary of terms used in DeFi and a brief history of the development of DeFi have been included in the appendix.


Jen Houng (Erik) Lie, FSA, ZooFi Labs
Gwen Yun Weng, FSA, CFA, ZooFi Labs
Wai Chak Tse, ZooFi Labs

Publication Date: March 2022

Publication Site: SOA

U.S. Life Insurance Sales Rise on Covid-19 Fears

Link: https://www.wsj.com/articles/u-s-life-insurance-sales-spike-on-covid-19-fears-11647347494



Americans went on a buying spree for life insurance in 2021, driven by concerns of death from the coronavirus pandemic.

Premium volume for new individual life-insurance policies surged 20% from 2020, while the number of policies issued rose 5%, the biggest year-over-year percentage gains since the 1980s, according to industry-funded research firm Limra.

“As we zero in on one million Americans who tragically lost their lives, it’s not a surprise that people are thinking about their own mortality and the impact on loved ones if anything were to happen to them,” said David Levenson, Limra’s chief executive.

The exact number of policies sold is still being calculated, but it is expected to top 10 million, Limra said. That milestone was last crossed in 2016. In 2020, an estimated 9.83 million policies were sold, up 1.7% from 2019.

Author(s): Leslie Scism

Publication Date: 15 March 2022

Publication Site: WSJ

Life Application Activity Cools Again

Link: https://www.thinkadvisor.com/2022/05/10/life-application-activity-cools-again/


Policygenius, a life insurance web broker, uses its term life pricing information to provide monthly term life price index reports.

The company bases the index on prices for coverage with a 20-year-level premium term.

The lowest price shown is for coverage for a 25-year-old female nonsmoker who wants $250,000 in death benefits; The highest price is for a 55-year-old male smoker who wants $1 million in death benefits.

Policygenius figures suggest rising premiums may not be causing life application friction.

This month, the lowest price in the tables fell slightly, to $14.21, from $14.25 last month.

Author(s): Allison Bell

Publication Date: 10 May 2022

Publication Site: Think Advisor

Immigration and America’s Aging ‘Time Bomb’

Link: https://knowledge.wharton.upenn.edu/article/immigration-impacts-americas-aging-time-bomb/


Anew research model from the Penn Wharton Budget Model (PWBM) has brought clarity to the immigration debate in the U.S. by analyzing the macroeconomic implications of different policy scenarios. The model is at the core of a paper titled “Immigration and the Macroeconomy” authored by PWBM experts – Efraim Berkovich, director of computational dynamics; Daniela Costa, economist; and Austin Herrick, senior analyst.

“We find that, after an initial period, increasing legal immigration improves both the government’s fiscal balance and the economy on a per-capita basis,” the paper stated. “Legalization policies [or regularizing undocumented immigrants], on the other hand, worsen the government’s fiscal balance due to increased spending, while having modest effects on the economy broadly.” Lawful immigrants receive government transfers over their lifetime such as Social Security benefits, Medicaid, and the Supplemental Nutrition Assistance Program (SNAP); if they are not sufficiently productive, they create a “retirement benefits imbalance,” the paper pointed out.

The legalization plan the paper modeled is similar to the legalization provisions in the Biden immigration plan. That plan was akin to “a one-shot legalization for people who are already in the U.S.,” said Herrick.

Author(s): Shankar Parameshwaran

Publication Date: 15 March 2022

Publication Site: Wharton at Penn

Personal Income Rose in 2021, But Growth Varied by State

Link: https://www.pewtrusts.org/en/research-and-analysis/articles/2022/05/13/personal-income-rose-in-2021-but-growth-varied-by-state



Total personal income climbed in every state during the second year of the COVID-19 pandemic as the economy continued to recover, with Idaho and South Dakota experiencing the strongest gains. Americans’ earnings from work, which account for the bulk of personal income, recorded the sharpest annual increase in over two decades. Federal aid and other public assistance also added to states’ gains, surpassing 2020’s elevated levels.

Total personal income rose across states in 2021 as the economy largely followed an upward trajectory after severe losses early in the pandemic. Nationally, the sum of personal income from all sources was up 3.1% from 2020, after accounting for inflation.

Author(s): Mike Maciag, Joanna Biernacka-Lievestro & Joe Fleming

Publication Date: 13 May 2022

Publication Site: Pew Trust

Pensions’ Bad Year Poised to Get Worse

Link: https://www.wsj.com/articles/pensions-bad-year-poised-to-get-worse-11652175002


Losses across both stock and bond markets delivered a double blow to the funds that manage more than $4.5 trillion in retirement savings for America’s teachers, firefighters and other public workers. These retirement plans returned a median minus 4.01% in the first quarter, according to data from the Wilshire Trust Universe Comparison Service. Recent losses have further eroded their holdings.

“It’s a tough period,” said Jay Bowen, manager of the Tampa Firefighters and Police Officers Pension Fund. “Nobody is immune.”

The declines in stocks and bonds are inflicting pain on household and institutional investors in 2022. The S&P 500 has returned minus 13.5% year to date through Friday, while the Bloomberg U.S. Aggregate bond index — largely U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities — returned minus 10.5%.

Pension funds maintain huge portfolios of stocks, bonds and other assets, wielding significant power on Wall Street, where their purchases and sales can shift prices and investment managers vie for their business. Their losses can raise costs for governments and workers, squeeze municipal budgets and drive up taxes.

Author(s): Heather Gillers

Publication Date: 10 May 2022

Publication Site: WSJ

New York City Wants to Amp Up Risk in Workers’ Pensions

Link: https://www.wsj.com/articles/new-york-city-wants-to-amp-up-risk-in-workers-pensions-11650976985



New York City’s comptroller is the latest public official trying to change laws aimed at limiting risk in pension investments, as U.S. state and local pension funds try to plug shortfalls in a low-return environment.

Comptroller Brad Lander, who oversees about $260 billion in retirement money for city police, firefighters, teachers and other public workers, is asking New York lawmakers for more flexibility to invest in private markets, high-yield debt and foreign stocks. The state comptroller’s office, which supervises another $280 billion in retirement assets, views the idea favorably, with a representative saying such flexibility “is key in times of market volatility.”

Pension funds, like household investors, are facing a relatively bleak environment for stocks and bonds, the bread and butter of a traditional retirement portfolio. In the face of historic inflation and Federal Reserve efforts to contain it, these funds are finding they can no longer rely on bonds to rise when equities fall and vice versa. In the first quarter, the S&P 500 returned minus 4.6% while the Bloomberg U.S. Aggregate bond index returned minus 5.93%.

“Those two things taken together is what’s scary: the prospect of both going down at the same time,” said Steve Foresti, chief investment officer at Wilshire Associates, which advises large public pension funds. Retirement portfolio managers, he said, are asking “in that environment, do I have anything that actually goes up?”

Author(s): Heather Gillers

Publication Date: 26 April 2022

Publication Site: WSJ

Private Overborrowing Under Sovereign Risk

Link: https://www.chicagofed.org/publications/working-papers/2022/2022-17



This paper proposes a quantitative theory of the interaction between private and public debt in an open economy. Excessive private debt increases the frequency of financial crises. During such crises the government provides fiscal bailouts financed with risky public debt. This response may cause a sovereign debt crisis, which is characterized by a higher probability of a sovereign default. The model is quantitatively consistent with the evolution of private debt, public debt, and sovereign spreads in Spain from 1999 to 2015, and provides an estimate of the degree of overborrowing, its effect on the spreads, and the optimal macroprudential policy.

Author(s): Fernando Arce

Publication Date: May 2022

Publication Site: Chicago Fed

Diversity At the Fed and ECB? There is None, It’s a Big Self-Serving Lie

Link: https://mishtalk.com/economics/diversity-at-the-fed-and-ecb-there-is-none-its-a-big-self-serving-lie


Tweet link:


At the ECB, you better be gung-ho pro-EU. You better believe negative interest rates are a good idea. And you must back the idea that targeting 2% inflation makes sense.

Finally, if somehow you find yourself at the ECB disagreeing with any of those things, you are expected to shut your mouth so the consensus view never shows any dissent.


At FRBNY, I recall the people who ran Treasury markets, money markets, etc. literally had no relevant experience or expertise. The job of staff was to make them appear competent, but it didn’t really matter what they did because Fed can’t fail and they can’t get fired.  

This creates a culture where anyone with talent or ambition GTFO ASAP. There are exceptions, but those who rise tend to be those who have no where else go. It’s a weird structure where the higher you go, the more incompetent you are.

So it’s no surprise Fed is failing

Author(s): Mike Shedlock

Publication Date: 13 May 2022

Publication Site: Mish Talk

When Harry Fired Sally: The Double Standard in Punishing Misconduct

Link: https://www.journals.uchicago.edu/doi/abs/10.1086/718964


We examine gender differences in misconduct punishment in the financial advisory industry. There is a “gender punishment gap”: following an incident of misconduct, female advisers are 20% more likely to lose their jobs and 30% less likely to find new jobs, relative to male advisers. The gender punishment gap is not driven by gender differences in occupation, productivity, nature of misconduct, or recidivism. The gap in hiring and firing dissipates at firms with a greater percentage of female managers and executives. We also explore the differential treatment of ethnic minority men and find similar patterns of “in-group” tolerance.

Author(s): Mark Egan, Gregor Matvos, and Amit Seru

Publication Date: May 2022

Publication Site: Journal of Political Economy; Volume 130, Number 5

The 2022 Policygenius Life Insurance Trend Report

Link: https://www.policygenius.com/life-insurance/life-insurance-trend-report-2022/



The marketplace has experienced a surge in insurance companies offering no-medical-exam life insurance — and accelerated underwriting options in particular — that satisfy the growing demand for quick, contactless coverage. 

“We went from having three [AU options] in early 2020 to seven in 2021, with more on the horizon for 2022,” says Eloise Spinello, associate director of account management at Policygenius. “More insurers are adjusting to demand by offering no-med options that account for all health classes as well, rather than reserving these options for only the healthiest applicants.” 

In addition to their convenience, accelerated underwriting policies are frequently one of the most affordable options for shoppers. Policygenius Life Insurance Price Index data from the last year shows that no-medical-exam term insurance policies are competitively priced compared to term policies requiring a full medical exam — and some applicants even paid less for no-medical-exam term coverage. For example, 25-year-old females buying $250,000 in coverage paid 1.6% less in 2021 for a no-medical-exam term policy than they did for a traditional policy. 

Author(s): Nupur Gambhir & Amanda Shih

Publication Date: 2 February 2022

Publication Site: Policygenius