Regulation of the Financial Guarantee Industry

T-GGD-88-2: Published: Oct 14, 1987. Publicly Released: Oct 14, 1987.

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GAO discussed the financial guarantee industry, specifically: (1) regulatory oversight; (2) the types of guarantees; and (3) the participants in the industry. GAO noted that there are two types of guarantees, including: (1) risk insurance, for investors' protection; and (2) credit enhancement, which improves the insured's credit rating. GAO found that: (1) insurance companies do not report financial guarantees separately; (2) the industry is growing rapidly; and (3) losses may have occurred because insurance companies assumed excessive risks. GAO also found that: (1) several states have enacted model legislation, which the National Association of Insurance Commissioners recommended, to require insurance firms to isolate financial guarantees from their other lines; and (2) many industry and state officials object to this approach.

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