Insurer Failures:

Regulators Failed to Respond in Timely and Forceful Manner in Four Large Life Insurer Failures

T-GGD-92-43: Published: Sep 9, 1992. Publicly Released: Sep 9, 1992.

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GAO discussed the failures of four large insurance companies and the effectiveness of state solvency regulation of those companies. GAO noted that: (1) the four insurers failed due mainly to poorly controlled growth and risky investments; (2) their internal controls and governance were very weak; and (3) the four insurers received millions of dollars in surplus relief from their parent holding companies, which masked their inherent capital inadequacies. GAO also noted that: (1) the state regulators' information was not timely, complete, or accurate; (2) state regulators did not keep each other informed about solvency problems despite the interdependency of the insurance industry; (3) the regulators were incapable of dealing with the insurers' risky investments; (4) regulators were limited in their ability to evaluate and control insurers' relationships with holding companies and affiliated entities; (5) regulators were slow to ban the surplus relief given by the holding companies; (6) although they were aware of the insurers' troubled conditions, the regulators did not take timely and forceful action to safeguard policyholders' interests; and (7) inadequate measures of capital adequacy and a lack of standards for regulatory intervention led to the ineffective regulatory handling.

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