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.
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Members of the Financial Condition Committee agreed to create the working group, and the subgroup, in February, during a conference call meeting.
The Words
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.