State insurance regulators are trying to develop better strategies for dealing with seriously troubled insurers outside of formal receivership proceedings.
The Financial Condition Committee — an arm of the National Association of Insurance Commissioners (NAIC) — has set up a new Restructuring Mechanisms Working Group.
The working group will be looking at efforts to transfer the policies of failing insurers to stronger insurers; requirements for running insurers in runoff mode; and other methods for dealing with struggling insurers without putting the policyholders in the hands of state guaranty associations.
Members of the Financial Condition Committee agreed to create the working group, and the subgroup, in February, during a conference call meeting.
The Financial Condition Committee has dealt with restructuring issues before. In 1997, for example, a committee working group noted in a paper about restructuring that an insurance company, or an insurance holding company, can restructure itself in many ways.
The working group said an insurer can restructure itself by:
- Walling off and selling certain operations to other companies.
- Selling control over some operations to public investors.
- Creating an entity outside of the United States, and transferring some liabilities or assets to the offshore entity.
- Separating ongoing and discontinued operations, and asking investors, regulators and others to focus mainly on the performance of the ongoing operations.
- transferring policyholders to a healthier insurer.
In some cases, entering run-off mode may be part of the restructuring process.