Observations on the Receivership of Monarch Life Insurance Company
GGD-95-95: Published: Mar 22, 1995. Publicly Released: Mar 22, 1995.
Pursuant to a congressional request, GAO examined the placing of Monarch Life Insurance Company in receivership, focusing on: (1) whether the actions of the parent holding company or affiliated companies endangered the solvency of Monarch Life; and (2) the adequacy of regulatory oversight leading up to the insurance receivership.
GAO found that: (1) the holding company pledged Monarch Life stock as collateral on a loan which endangered its solvency and led to the regulatory takeover by the holding company's creditors; (2) the holding company diverted about $165 million from Monarch Life to fund its real estate activities, but it was unable to repay the loan; (3) Monarch Life lost $54 million in real estate investments and faced additional risk by acting as a loan guarantor for the holding company's real estate operations; (4) the Massachusetts Division of Insurance was unaware of Monarch Life's insolvency until the holding company disclosed its inability to repay its loans in 1990; (5) previous regulatory examinations of Monarch Life's financial statements did not reveal any solvency problems due to inadequate information on interaffiliate transactions; (6) once the holding company publicly announced that its financial condition endangered Monarch Life's solvency, state regulators acted quickly to protect the insurance policyholders; and (7) although Massachusetts expanded its regulatory authority to prevent abusive interaffiliate transactions between insurance companies, it continues to rely on insurer disclosure to enforce insurance holding company laws.