Insurance Regulation:

Problems in the State Monitoring of Property/Casualty Insurer Solvency

GGD-89-129: Published: Sep 29, 1989. Publicly Released: Nov 14, 1989.

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Pursuant to a congressional request, GAO reviewed state monitoring of property/casualty insurer solvency, focusing on: (1) how state insurance departments detected financially troubled insurers; (2) the resources available to states for monitoring insurer solvency; and (3) the extent to which states shared information and otherwise cooperated in dealing with problem insurers.

GAO found that: (1) states relied primarily on licensed insurers' annual financial statements and periodic field examinations to detect possible insurer solvency problems; (2) time lags in state examination and detection existed because insurers did not file their annual financial statements until 2 months after the end of the accounting year and states could take 6 weeks to 3 months to review them; (3) 35 states did not require independent accountant verification of annual financial statements, and most states only required field examinations once every 3 to 5 years; (4) most states did not require loss reserve actuarial certification, and half of the states did not have actuaries participating in field examinations; (5) although the National Association of Insurance Commissioners (NAIC) assisted states in monitoring efforts with its Insurance Regulatory Information System, states had varied opinions on the system's importance and reliability in detecting solvency problems compared to their own analysis; (6) NAIC issued a set of standards intended to improve the quality of state solvency regulation; (7) 21 of 51 state insurance departments had difficulties in obtaining adequate funding for their examination staff; (8) the 5 states reviewed had 29 staff available to analyze 6,450 annual statements, and 31 states used underqualified examiners; and (9) although NAIC recently increased its efforts to improve coordination and cooperation among states, it could not require state participation in its activities or in using its facilities.

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