A Rebuttal from Delaware.

Editor's Note: Best's Review shared Phillip Mathis letter (above) with the Delaware Insurance Department to allow it the chance to respond to this issue.

I read with some puzzlement Mr. Mathis' comments concerning the article about National Heritage Life Insurance Co.'s demise and the ongoing efforts to punish the many wrongdoers and recover the stolen funds.

While Mr. Mathis' agenda is unclear, his personal attack on Delaware Insurance Commissioner Donna Lee Williams is unwarranted and based on regrettable ignorance of the facts.

This fraud was the product of an unprecedented and staggeringly deep conspiracy among sophisticated criminals--lawyers, accountants, investment brokers, bankers and others --whose every move was carefully designed to thwart even the most intensive regulatory oversight. Mr. Mathis recalls from his time as a Texas regulator that there were procedures to investigate and verify the financial credibility of those acquiring control of insurance companies. Delaware's Insurance Department is accredited by the NAIC and remains among the leaders in developing procedures to regulate participants in the increasingly complex international financial system. Some of the procedures used in this case included obtaining biographicals, confirming financial information, reviewing CPA audits and performing target examinations in conjunction with the states of Texas, Florida and others.

In National Heritage's case, every such procedure was met with a bold criminal conspiracy (e.g., audit confirmations were certified and returned by professionals expertly recruited to be accomplices in the fraud). The number and length of sentences in the criminal convictions of well-known and previously well-regarded professionals stand as testimony to the boldness of their schemes.

As to the treatment of policyholders, it should be made clear that through the efforts of the Delaware Department of Insurance, restitution was made to all policyholders in accordance with the Insurance Laws of the State of Delaware. A substantial portion of the total loss has been recovered by the Delaware Department of Insurance, most of which ($192 million) was distributed to the guaranty associations and the uncovered policyholders, thereby reducing the taxpayers' ultimate burden.

Obviously there are those who will support the federal government's usurpation of insurance company regulation. This debate should be waged on its merits. Whatever the outcome of the debate, National Heritage will stand as an example of one state's abilities to detect and punish even the most far-reaching fraud with a minimum of bureaucracy and inefficiency.

Through Delaware's regulatory effort, the massive fraud was detected and those responsible have been punished. Equally important, assets have been recovered resulting in substantial reimbursements to the policyholders and guaranty associations.