Regulators Say Consecos Insurance Units Are Solid
Regulators say Conseco Inc. executives are telling them that the Carmel, Ind. financial services companys life insurance subsidiaries are “solid” despite the parent companys current financial distress.
Insurance regulators in California, Florida, Georgia, Illinois, Texas and Consecos home state, Indiana, say that for the time being they are confident the insurance operations are meeting state solvency standards.
Regulators also say they are telling a growing number of producers and consumers in their states the same thing as public concern over the strength of Consecos insurance units grows and calls continue to be logged at insurance departments.
On August 9, Conseco said it was exercising a 30-day grace period on upcoming bond payments and was engaging financial advisor Lazard Freres & Co. and the Kirkland & Ellis law firm for the purpose of beginning immediate discussions with debt holders with a goal of restructuring the capital of the parent company.
Regulators say Conseco management has tried to keep them abreast of the state of the insurance operations and second quarter results which were released on Aug. 14. (See story on facing page.)
They say, however, that the issue of ratings changes and the impact on producers willingness to place business with the insurance units has not been addressed.
Conseco has been hit with a slew of downgrades by the rating agencies.
A.M. Best downgraded the insurance financial strength ratings of the insurance units to B (Fair) from B++ (Very Good). Fitch Ratings, Chicago, lowered the insurance company ratings to B from BB, and Standard & Poors Corp., New York, has the insurance units ratings on B+-negative. Moodys Investors Service, New York, has left the ratings of Consecos insurance units unchanged at B2 and Ba3 for Conseco Variable Insurance Company.
“The insurance companies are solvent and profitable. It is the parent company that is really the problem,” says Greg Thomas, chief deputy commissioner of the Indiana insurance department. “Solvency and reserves are more than adequate.”
The Indiana department sought outside legal counsel to determine if the insurance companies could be used to satisfy the demands of the parents creditors in the event of a bankruptcy, Thomas says.
Although there is not case law on the issue, he continues, the findings of the privileged memorandum suggest the insurance entities assets would not be accessed.
What regulators also could not say for sure was whether, in the event of a regulatory seizure of any Conseco entity, state guaranty funds would cover all product lines.
At press time, the National Organization of Life and Health Insurance Guaranty Associations, Herndon, Va., could not be reached for comment.
Although there are “walls around the insurance companies,” Thomas asserts, there is “a lot of hysteria from people who think it is one big company.”
“At this point, I would say that the companies are solid,” says Jack Messmore, deputy director of the financial division for the Illinois insurance department. Before any dividend or surplus notes can be upstreamed to a parent company of an insurer, the insurance department in that state must approve, he adds.
Lee Jones, a representative with the Texas department, adds that before any insurance company is sold, state regulators must approve. Currently, Texas maintains that each of the insurance companies has sufficient capital and surplus, Jones continues. “Everyone is hoping and praying that Conseco will right itself.”
“Conseco has been really good about reaching out to regulators,” says Beth Vecchioli, deputy director of insurance services with the Florida department.
As of the last quarterly filing with the department, all 12 Conseco units operating in the state are in good standing and Florida does not expect non-compliance when the second quarter filing is made, Vecchioli adds.
If, theoretically, an insurers parent filed for bankruptcy, the insurance companies could not legally be picked apart, she says.
During conversations with management, Florida was told there is no plan to sell any of the insurance operations or to move books of business, she adds.
“Each company on its own is in stable financial condition,” says John Charlton, a representative of the Ohio department. There are risk-based capital laws that need to be met by insurers and if RBC fell below required levels, that is when Ohio could stop business from being written in the state, he continues.
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 19, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.