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(CBS News)   Like mortgage lenders a few years ago, now insurance companies are using shell corporations to conceal debt and spike profits   (cbsnews.com ) divider line
    More: Stupid, insurance companies, National Association of Insurance Commissioners, MoneyWatch, shell companies, excess risk, reinsurance, MetLife, Benjamin Lawsky  
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1087 clicks; posted to Business » on 13 Jun 2013 at 9:11 AM (2 years ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-06-13 08:47:01 AM  
Judging by tfa, it seems the lesson we learned is that if you use shady business practices to expose your company to existential risk, hopefully to such a degree that you endanger the whole economy, the taxpayers will bail you out, your executives will get large-by-huge bonuses, and the only poor chumps who will suffer any loss will be your customers. Welcome to the new normal, citizen. Enjoy your wage stagnation.
 
2013-06-13 09:04:57 AM  
I don't know what the problem is. This is just an example of the hard, productive work and innovation that defines what it means to be American. If you're not out to screw everyone out of their last dollar, then why are you even trying?
 
2013-06-13 09:31:43 AM  

Another graduate from the Ken Lay School of Business?

j-walkblog.com

 
2013-06-13 10:16:25 AM  
Corporations will try to get away with almost anything if you let them.  Fortunately for the insurers, they now write all the legislation that regulates them, so there are no consequences.  They're too big to fail.  The government will bail them out with our tax dollars when the whole thing goes sour.  And the best part is, it doesn't matter if you vote D or R.  Both parties will fark America up the ass for a campaign contribution.
 
2013-06-13 10:20:16 AM  
What is their estimated profits after we are all forced to pay them for the simple act of being alive under AHA?
 
2013-06-13 10:22:53 AM  
Modern insurance companies of any kind are just about the most evil creation man has ever produced.
 
2013-06-13 10:50:25 AM  
Although the NYDFS is right to shine a light on these things, it's worth noting that the reserves put in these entities are frequently very conservative (way above economic level) reserves, as required by by ultra conservative regulations.

Insurance regulators were all set to do away with these hyper conservative reserving requirements, and replace them with still conservative but more realistic rules, but New York got in the way at pretty much the last minute.

Without any discussion or context of that in the repory, it's really hard to not believe that this is just more political grandstanding.
 
2013-06-13 11:28:09 AM  
but but but but..the FREE MARKET. RON PAUL
 
2013-06-13 11:38:05 AM  
"They've introduced the death penalty for insurance company officers."
"For what offense?"
"What do you mean, offense?"
 
2013-06-13 11:54:39 AM  

trotsky: but but but but..the FREE MARKET. RON PAUL


This is about regulation, not the free market.  Try to keep up
 
2013-06-13 11:55:21 AM  

Deneb81: Modern insurance companies of any kind are just about the most evil creation man has ever produced.



Without insurance companies, good luck trying to get anything of any size built or manufactured
 
2013-06-13 12:16:49 PM  

MugzyBrown: Deneb81: Modern insurance companies of any kind are just about the most evil creation man has ever produced.

Without insurance companies, good luck trying to get anything of any size built or manufactured


Oh, well, then nevermind. Obviously there's no problem here.

/don't have a solution
//just sayin
 
2013-06-13 12:18:02 PM  

Debeo Summa Credo: Although the NYDFS is right to shine a light on these things, it's worth noting that the reserves put in these entities are frequently very conservative (way above economic level) reserves, as required by by ultra conservative regulations.

Insurance regulators were all set to do away with these hyper conservative reserving requirements, and replace them with still conservative but more realistic rules, but New York got in the way at pretty much the last minute.

Without any discussion or context of that in the repory, it's really hard to not believe that this is just more political grandstanding.


My issue with this position is that we live in a world where it's been proven more likely to be both rather than one or the other.
 
2013-06-13 12:47:04 PM  

Debeo Summa Credo: Although the NYDFS is right to shine a light on these things, it's worth noting that the reserves put in these entities are frequently very conservative (way above economic level) reserves, as required by by ultra conservative regulations.


On the other hand, look at the housing market collapse and it's effect on banking reserves, causing failure in a number of banks/investment firms.

You don't set the reserve requirements at 'economic levels', because that only assumes an average year of claims.  Odds are, sooner or later California will be hit with an earthquake the same year Florida and the Gulf coast are hit with nasty hurricanes, an F-5 tornado takes a tour through a midwestern city, and there's a major chemical disaster from a company that actually carries an appropriate amount of insurance.

*shrug* but I'm not an expert and I don't know how crazy high the reserve requirements actually are.  I just know that I have my insurance through allstate, now I'm going to have to consider switching.
 
2013-06-13 01:39:14 PM  

MugzyBrown: Deneb81: Modern insurance companies of any kind are just about the most evil creation man has ever produced.


Without insurance companies, good luck trying to get anything of any size built or manufactured


No, you would just have more competent management and more competent lenders.

When I bought my house, I had to fight the lender because the WDO inspection found some wood rot on the exterior fascia (the cheap paper-board stuff that eventually will rot after 10-15 years or so if it isn't maintained).  The lender's underwriting went absolutely nuts because of "termite damage."  They requested quotes from pest control companies to remove the "termite infestation" and then a general contractor to repair the "termite damage."  I had to argue with them for weeks, and eventually got the WDO inspectors to go to bat for me and tell the lenders it was just cosmetic and was a simple matter to just replace the fascia boards.  I still had to get a general contractor to do that work, though, which cost me about twice what it should have.  During that conversation the lender's underwriting representative asked "I don't see any quote for treating the house," to which I replied: "we're removing and replacing the damaged boards, there will be nothing to treat," to which they said: "But don't you have to tent the house???"  TENT THE HOUSE?

It's morons like this that feed insurance companies.  Without insurance we'd get a lot more competent businesses with better trained people because the morons would quickly go belly-up from sheer stupidity.

/end rant
 
2013-06-13 02:21:46 PM  

Firethorn: Debeo Summa Credo: Although the NYDFS is right to shine a light on these things, it's worth noting that the reserves put in these entities are frequently very conservative (way above economic level) reserves, as required by by ultra conservative regulations.

On the other hand, look at the housing market collapse and it's effect on banking reserves, causing failure in a number of banks/investment firms.

You don't set the reserve requirements at 'economic levels', because that only assumes an average year of claims.  Odds are, sooner or later California will be hit with an earthquake the same year Florida and the Gulf coast are hit with nasty hurricanes, an F-5 tornado takes a tour through a midwestern city, and there's a major chemical disaster from a company that actually carries an appropriate amount of insurance.

*shrug* but I'm not an expert and I don't know how crazy high the reserve requirements actually are.  I just know that I have my insurance through allstate, now I'm going to have to consider switching.


Well, I won't go into the details, but essentially alot of these reserves are for blocks of term life insurance and the required reserving levels are many times that which would be required based on realistic actuarial mortality tables.

But that said, I hope you are not thinking of switching because of this. Not that it isn't worth "shopping" your policy from time to time. I'm going to do that in the next week for my own property insurance. Don't let them charge you more without seeing if you can get a better deal elsewhere. As far as safety is concerned, compare ambest or rating agency ratings and give preference all else equal to mutuals.

TFA has nothing to do with property insurance, I believe.
 
2013-06-13 02:30:59 PM  

Nofun: MugzyBrown: Deneb81: Modern insurance companies of any kind are just about the most evil creation man has ever produced.


Without insurance companies, good luck trying to get anything of any size built or manufactured

No, you would just have more competent management and more competent lenders.

When I bought my house, I had to fight the lender because the WDO inspection found some wood rot on the exterior fascia (the cheap paper-board stuff that eventually will rot after 10-15 years or so if it isn't maintained).  The lender's underwriting went absolutely nuts because of "termite damage."  They requested quotes from pest control companies to remove the "termite infestation" and then a general contractor to repair the "termite damage."  I had to argue with them for weeks, and eventually got the WDO inspectors to go to bat for me and tell the lenders it was just cosmetic and was a simple matter to just replace the fascia boards.  I still had to get a general contractor to do that work, though, which cost me about twice what it should have.  During that conversation the lender's underwriting representative asked "I don't see any quote for treating the house," to which I replied: "we're removing and replacing the damaged boards, there will be nothing to treat," to which they said: "But don't you have to tent the house???"  TENT THE HOUSE?

It's morons like this that feed insurance companies.  Without insurance we'd get a lot more competent businesses with better trained people because the morons would quickly go belly-up from sheer stupidity.

/end rant


You're in a land of make believe.  First, your issue was with the lender, not insurance.  So I have no idea why the story was even told.

But, you had to provide proof of insurance to get a mortgage right?

Now imagine if you were buying/building a $100mm factory.  Who is going to lend somebody $100mm for something that could go up in flames without insurance?
 
2013-06-13 02:42:54 PM  

Notabunny: Judging by tfa, it seems the lesson we learned is that if you use shady business practices to expose your company to existential risk, hopefully to such a degree that you endanger the whole economy, the taxpayers will bail you out, your executives will get large-by-huge bonuses, and the only poor chumps who will suffer any loss will be your customers. Welcome to the new normal, citizen. Enjoy your wage stagnation.


This, unfortunately. The legal and financial systems are set up to protect wealth, not to distribute it. The rich have lots of avenues with which to protect their wealth, while the poor have little to no recourse.
 
2013-06-13 03:11:28 PM  

A Shambling Mound: Debeo Summa Credo: Although the NYDFS is right to shine a light on these things, it's worth noting that the reserves put in these entities are frequently very conservative (way above economic level) reserves, as required by by ultra conservative regulations.

Insurance regulators were all set to do away with these hyper conservative reserving requirements, and replace them with still conservative but more realistic rules, but New York got in the way at pretty much the last minute.

Without any discussion or context of that in the repory, it's really hard to not believe that this is just more political grandstanding.

My issue with this position is that we live in a world where it's been proven more likely to be both rather than one or the other.


Well, you are probably right. There's no doubt that insurers are engineering capital levels with these moves. But it wasn't a secret to rating agencies, agents, or regulators either. In fact, not to get too far into the weeds, but some states regulators (Vermont and south Carolina, in particular) actually regulate many of the onshore captives that TFA complains about, and allow lower levels of capital. New york's beef is actually with regulators of other states with more lax rules, but you don't get much mileage out of a public report that complains about other regulators.

So in short, this is definitely something that regulators should monitor and New York has the right to restrict the use of this by its companies, but it irks the shiat out of me that te regulator gets on a high horse and releases a grandstanding report like this. 99% of the public are totally clueless and read it thinking that Lawsky uncovered some nefarious wrongdoing, when this practice was well known and even condoned by other regulators.
 
2013-06-13 05:08:38 PM  
STOP HARASSING THE JOB CREATORS!
 
2013-06-13 08:54:42 PM  

MugzyBrown: Nofun: MugzyBrown: Deneb81: Modern insurance companies of any kind are just about the most evil creation man has ever produced.


Without insurance companies, good luck trying to get anything of any size built or manufactured

No, you would just have more competent management and more competent lenders.

When I bought my house, I had to fight the lender because the WDO inspection found some wood rot on the exterior fascia (the cheap paper-board stuff that eventually will rot after 10-15 years or so if it isn't maintained).  The lender's underwriting went absolutely nuts because of "termite damage."  They requested quotes from pest control companies to remove the "termite infestation" and then a general contractor to repair the "termite damage."  I had to argue with them for weeks, and eventually got the WDO inspectors to go to bat for me and tell the lenders it was just cosmetic and was a simple matter to just replace the fascia boards.  I still had to get a general contractor to do that work, though, which cost me about twice what it should have.  During that conversation the lender's underwriting representative asked "I don't see any quote for treating the house," to which I replied: "we're removing and replacing the damaged boards, there will be nothing to treat," to which they said: "But don't you have to tent the house???"  TENT THE HOUSE?

It's morons like this that feed insurance companies.  Without insurance we'd get a lot more competent businesses with better trained people because the morons would quickly go belly-up from sheer stupidity.

/end rant

You're in a land of make believe.  First, your issue was with the lender, not insurance.  So I have no idea why the story was even told.

But, you had to provide proof of insurance to get a mortgage right?

Now imagine if you were buying/building a $100mm factory.  Who is going to lend somebody $100mm for something that could go up in flames without insurance?


I got too high on my soapbox as usual. You're correct, the lender had the issue with the WDO. The insurance had issues with the aluminum feeder conductors, which was similar, but a separate issue. I had similar problems with the electrical because aluminum feeders are allowed under current NEC, but the insurance people heard "aluminum" and "electrical" in the same sentence and freaked out too.

I agree that we need insurance for some things (Acts of God for example), unfortunately I think too many businesses use insurance as a shield for lack of knowledge about what they're doing. The WDO issue and my electrical issues are case-and-point.

Aluminum wiring is perfectly safe to use as long as you secure the ends of it properly in proper receptacles. Too many DIYers were doing their own electrical work, and homes started going up in flames, so now insurance basically won't touch your home if it has aluminum BRANCH wiring (even though it might be perfectly safe). As a result, countless homes have had to have been re-wired completely just so the new owner can get insurance, often when there's no need to. In my case it was just aluminum service feeders, but the insurance people didn't understand, and that was a long battle too.

My frustration is that the lenders and insurance writers are number-crunchers, and when they encounter something they don't understand, they get scared and end up making people jump through extra hoops to satisfy themselves when there's really no need for it.

I understand insurance helps free the flow of credit, and has a purpose. I just think it's gotten to be too big of an industry, populated by too many statisticians who look at the numbers and think they're safe (whether they really are or not), without enough real knowledge of what is actually going on.

Sorry, I tend to get on soap boxes. Look, I did it again!
 
2013-06-14 06:13:24 PM  
Author of TFA has never worked in the insurance business.

S.O.P. for years, both for tax and risk mitigation purposes.
 
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