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

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.