Failed Promises: Insurance Company Insolvencies : a Report, Volumes 2-3

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U.S. Government Printing Office, 1990 - Bankruptcy - 76 pages
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Page 10 - The use of managing general agents (MGAs) by insurance companies to write business on their behalf is an industry practice that can be exceedingly dangerous. In effect, the insurance company hands over responsibility for its business to the MGA, granting the agent power to underwrite business, obligate the company, handle claims, and even arrange for reinsuring the business written by the MGA in the company's name. Such a complete delegation of authority would be dangerous by itself, but the problem...
Page 62 - ... shall be punished by a fine of not less than one dollar ($1.00) nor more than fifty dollars ($50.00), or by imprisonment in the city or county jail for not less than five days nor more than ninety days, or by both such fine and imprisonment.
Page 11 - Insurance companies that basically rent their name in a fronting arrangement earn a fee, but they risk financial disaster if the reinsurers arranged by the MGA's refuse, or are unable, to pay their share of claims.
Page 62 - ... suffers or permits the use of any article or scaffolding declared by a proper officer to be defective, or who destroys or defaces any notice posted in accordance with...
Page 55 - Office (GAO, 1989, p.4) implies such a linkage exists between regulatory resources and the number of insolvencies: 21 of 51 insurance departments reported difficulties obtaining adequate funding. ... The 5 states GAO visited had 29 staff available to analyze 6,450 annual statements. Officials in two of the five states said that funding shortages prevented them from hiring needed examiners. Moreover, at least 31 states are using some examiners who are underqualified by Association standards. The GAO...
Page 72 - Subcommittee found numerous weaknesses and breakdowns in this system, including lack of coordination and cooperation, infrequent examinations based on outdated information, insufficient capital requirements and licensing procedures, failure to require use of actuaries and independent audits, and improper influence on regulators.
Page 1 - ... SOUNDNESS OF THE INSURANCE INDUSTRY As is well known to the Members of this Committee, the safety and soundness of the insurance industry are of critical importance to American families and firms. As noted by the Subcommittee on Oversight and Investigations in its 1990 unanimous report on insurer solvency, "[t]he insurance industry sells a unique and important product that is vital to world commerce and individual security. That product is a promise to pay all or a part of the costs associated...
Page 10 - ... formal system to regulate the solvency of reinsurance companies, and the system of letters of credit and trust funds intended to secure the performance of reinsurers has been insufficient to cover actual losses. In the cases of Mission and Integrity, the reinsurance system broke down entirely. Both companies abused the system by using complex arrangements involving hundreds of reinsurers around the world to transfer most of the risk on the extremely unprofitable business they were writing to...