The Beginnings of the Stable Value Business

In 1991, Executive Life defaulted. Executive Life was an insurance company that had sold lots of GICs (Guaranteed Investment Contracts) to 401(k) plans to support what were often called “Guaranteed Income” options - typically promoted as the safest option in a plan’s investment line-up. Unfortunately for many plans and many investors, the “guarantee” was only as good as the insurance company backing it, and large losses were incurred as a result of the default.

The following year, Ivan Rudolph-Shabinsky joined Sanford C. Bernstein (later AllianceBernstein) to work with Rick Kaye and others. Rick had proposed an idea in 1991 about diversifying the insurance aspect of GICs by separating this insurance from the underlying portfolio. Ivan, then working at AIG, worked with Sanford Bernstein to develop the first “book value wrapper” - an insurance contract that would provide the stable “book value” accounting (basically principal plus interest) that made GIC’s so popular to begin with. But this contract was wrapped around a diversified portfolio of bonds held in trust by the 401(k) plan, so that if the insurer defaulted as Executive Life had, the underlying assets remained safe. All that was lost was the book value accounting if a replacement insurer could not be found. When AIG first balked at actually writing this insurance contract (they later chose to pursue this business), Ivan left to work for Sanford Bernstein. Together, he and Rick, along with Jason Psome who joined soon thereafter, proceeded to build the beginnings of what is now known as the the “Stable Value” business.