Regulators: Conseco Units Still Solvent

All the Conseco insurance operations are meeting statutory requirements, she says. When asked how well they were meeting it, Patterson replied, “They are meeting it. We cant really quantify in terms beyond that.”

There have been no additional requests from the parent for dividends from these companies, she says.

Indeed, Conseco said in its filing that it has agreed with regulators on safeguarding individual company assets.

The power of perception or satisfying consumer concerns may prove as challenging a hurdle as meeting debtholder demands, suggested one prominent former regulator with several insolvencies under his belt.

The regulator who declined to be named, said, “If consumers think a company is in trouble, then it can become a self-fulfilling prophecy. If a product is surrenderable, then people generally surrender it.”

That perception may also be driven by the reality of producers replacing the business of the troubled carrier, he adds.

“Every time that an agent replaces business, he gets a commission, and he can argue that he is doing the consumer a favor,” he says.

Victor Palmieri, who took the reins of the seized Mutual Benefit Life Insurance Company in the mid-1990s, offered his perceptions.

Palmieri, who continues work as a turnaround specialist operating out of Los Angeles, maintains that “in many cases, the policyholder has no idea who the carrier is and even if they do, often they are not aware of the difficulties that are affecting the company.”

In the cases of MBL and Confederation Life, another highly visible mid-90s rehabilitation, Palmieri says the issue of “unscrupulous agents” did come up. He qualified this observation by noting “that is not what scrupulous agents do and that is the majority of agents.”

When such activity arose, he explains, he took “very aggressive” action seeking sanctions against such agents. Twisting can result in agents losing their licenses, he notes.

When a holding company is in a cash crunch, according to an informed observer, what often happens is that costs of subsidiaries that would normally be consolidated and assumed by the parent are returned to the individual subsidiaries, which are expected to bear their own costs, this observer notes.

Although it is commonly believed that an insurance companys assets are safe from a parents creditors under law, some interviews suggest it is best for regulators to establish controls for this.

These controls have to be handled carefully, though, says this source. It is a “dance” because if you issue an order to conserve assets you might create the perception of insolvency and start a run on the bank, this source says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 25, 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.