Insurer Failures:

Life/Health Insurer Insolvencies and Limitations of State Guaranty Funds

GGD-92-44: Published: Mar 19, 1992. Publicly Released: Apr 28, 1992.

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Pursuant to a congressional request, GAO reviewed: (1) life and health insurance company failures; and (2) the protection available to policyholders when a failure occurs.

GAO found that: (1) since 1982, the average number of insolvencies in the life and health insurance industry has more than tripled to almost 18 per year, with 47 insolvencies occurring in 1989 and 27 in 1990; (2) between 1975 and 1989, assessments made by guaranty funds to pay failure and impairment costs increased from about $50 million to about $465 million; (3) 67 of the 112 companies that failed between 1986 and 1990 had assets and preimums of less than $50 million and were licensed in 10 or fewer states, but some companies taken over in 1991 by insurance regulators were large companies that marketed interest-sensitive, low-profit products while making high-risk investments; (4) the coverage of state life and health funds ranges from coverage for state residents only for those companies licensed in that state, to coverage for all policyholders for companies headquartered in the guaranty fund state; (5) some policyholders of multistate insurers may have no protection at all should their insurer fail; (6) although funds generally covered most life and health policies and annuities, almost every state fund made exceptions in its coverage; (7) state funds varied significantly in their coverage of certain annuities that are not issued to or owned by individuals; (8) all funds except Maryland's set claim and benefit limits ranging from $100,000 to $500,000 per policy; (9) the insurance industry, Congress, and the public are concerned about whether the funds' limited assessment capacity is adequate to handle an increasing number of failures; and (10) although an industry organization estimates that the funds, in aggregate, can assess about $3 billion in a year, the amounts that individual funds can collect in any single year varies by state.

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