Lawsuit seeks to shine spotlight on Iowa’s ‘shadow insurance’
September 13, 2016 by Business Record Staff
An Indiana university professor and insurance expert has filed a lawsuit against Iowa Insurance Commissioner Nick Gerhart and the Iowa Insurance Division, seeking access to financial records of Iowa insurance companies that are using “shadow insurance” financial practices he claims mask potential risks to policyholders.
Joseph Belth, an emeritus professor of insurance at Indiana University, filed the lawsuit in Polk County District Court on Sept. 2, challenging Gerhart’s refusal to release information related to insurers’ use of wholly owned subsidiaries known as limited purpose subsidiaries, also referred to as captive reinsurance subsidiaries.
Belth and other consumer advocates warn that the practice of some insurers, among them Cedar Rapids-based TransAmerica Corp., is enabling life insurance companies to transfer huge amounts of debt to the limited purpose subsidiaries in return for “parental guarantees to pay those subsidiaries if they get into financial trouble, according to a CBS News report.
“The LPSs, on their books, characterize the instruments as ‘assets’ to balance against the liabilities. The parent companies, in the meantime, having rid themselves of the liabilities, then appear, falsely, to have excess capital,” according to the lawsuit. Belth is seeking copies of documents related to eight Iowa-domiciled limited purpose subsidiaries.
Gerhart in July denied Belth’s request to make the documents public, citing confidentiality laws that protect the insurers.
A paper by the Federal Reserve Bank of Minneapolis in May showed that the amount ceded to captives by parent insurers had grown to $364 billion in 2012 from $11 billion a decade ago.
Iowa is among a handful of states that allow the practice. The legislation, adopted in 2010, “established a pragmatic approach to address the nationally recognized problem of excess reserves related exclusively to term insurance and universal life insurance with secondary guarantees,” said Chance McElhaney, communications director for the Iowa Insurance Division.
Originally Posted at Business Record on September 13, 2016 by Business Record Staff.
Categories: Industry Articles
