TITLE
"The "Run on the Bank" Exposure: Evidence and Implications for Life Insurer Insolvency," Journal of Insurance Issues,  James M. Carson and William L. Scott. Spring 1996, Vol. XIX, No. 1, pp. 39-52.

ABSTRACT
In addition to direct monitoring by state insurance regulators, rating agencies such as A.M. Best and Standard and Poor provide "market discipline" as extra-regulatory mechanisms in the insurance industry. These rating agencies were criticized following the 1991 failure of some large life insurers that had received ratings indicative of superior financial condition. While previous insolvencies were caused largely by mismanagement and fraud, the "run on the bank" phenomenon appeared as a new type of risk faced by life insurers. This paper examines the importance of this new type of risk and the extent to which raters evaluated insurers based on the "run on the bank" exposure prior to the failures of 1991. Empirical results do not support the hypothesis that Best and S&P appreciated the "run on the bank" exposure prior to 1991. The results provide motivation for researchers, raters and regulators to examine the new banking-type risks faced by insurers.