state vs state enabling bogus corporate insurance

[boutons_deux]

Seeking Business, States Loosen Insurance Rules

Companies looking to do business in secret once had to travel to places like the Cayman Islands or Bermuda.

Vermont, and a handful of other states including Utah, South Carolina, Delaware and Hawaii, are aggressively remaking themselves as destinations of choice for the kind of complex private insurance transactions once done almost exclusively offshore. Roughly 30 states have passed some type of law to allow companies to set up special insurance subsidiaries called captives, which can conduct Bermuda-style financial wizardry right in a policyholder’s own backyard.

Captives provide insurance to their parent companies, and the term originally referred to subsidiaries set up by any large company to insure the company’s own risks. Oil companies, for example, used them for years to gird for environmental claims related to infrequent but potentially high-cost events. They did so in overseas locations that offered light regulation amid little concern since the parent company was the only one at risk.

For insurers, these subsidiaries offer ways to unlock some of the money tied up in reserves, making millions available for dividends, acquisitions, bonuses and other projects. Three weeks after Aetna’s deal closed, the company announced it was increasing its dividend fifteenfold.

Perhaps more important, Vermont redefined the term “captive” to include subsidiaries of insurance companies.

“It is no longer ‘captive’ insurance,” said Thomas D. Gober, a financial fraud examiner who specializes in complex reinsurance transactions. “It’s now billions of dollars from all over the country, yet it’s still being regulated lightly, as if it’s captive.”

http://www.nytimes.com/2011/05/09/bu...gewanted=print

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Sorta like over-leveraged/under-reserved AIG duplicated 10s or 100s of times. Guess who will bail these insurance companies out?

[RandomGuy]

Oh .

It might be worth noting at this time, that insurance companies hold Trillions of dollars worth of assets as reserves for potential claims liabilities.

This "race to the bottom" in terms of seeking lax regulation is one of the things that enabled banks to dodge sane capital requirements and do stupid with their investments.

With the notable exception of AIG, and certain bond insurers, the financial crisis didn't kill a lot of insurance companies precisely *because* they were a bit more closely regulated.

I have seen a few captive insurance companies, and their only purpose seems to be to hide/move assets around from regulatory scrutiny.