Emergency repairs: A deputy California insurance commissioner counts success in companies rescued--and plays a national role in improving insurance accounting standards. (Regulation: The Big Picture).

Thirty years ago, while Norris Clark pulled bullets out of radios that had been damaged during the Vietnam War, he probably never thought he'd wind up with a distinguished career repairing damaged insurance companies.

In 1973, Clark, then 26, was a fresh graduate from California State University at Sacramento interviewing with a number of state agencies where his new degree in business administration and finance might be handy. "The Department of Insurance was the first one to actually offer a job. I said I would just do this temporarily until something else comes up," Clark said. That was 30 years ago this year.

Before graduating from college, Clark did a number of odd jobs, including working for the federal government at an Army depot where he repaired electronic equipment-including radios from Vietnam, some of which still had bullets in them. Now, instead of patching bullet holes, Clark is charged with patching companies in danger of going broke.

As deputy commissioner of the California Department of Insurance, Clark leads a team that attempts to salvage insurance companies before they become insolvent. It's a key role that often goes unnoticed by the public and the industry. If Norris and his department are successful, a company's precarious position never is made public. Only when a company fails and is taken into conservation does the story make headlines.

The success of Clark's department is important because when a company fails, the rest of the industry has to pay through contributions to the state guaranty funds, which pay claims for insolvent companies.

In addition to his duties as a regulator, Clark has played a' pivotal role in working with the National Association of Insurance Commissioners, where he chaired the committee that helped to develop a unified accounting system that has been adopted by all of the states. In doing so, he has stretched his influence beyond the borders of California, and he has won the respect of regulators and companies around the country.

"Norris Clark is a brilliant workhorse," said Tern Vaughan, insurance commissioner of Iowa and former president of the NMC. "He does so many things, and he knows so much."

Clark might not be a household name, but those who know him and his work said he's an expert on insurance accounting and a stickler for details. They also give him perhaps the highest praise a regulator could receive: they say he's fair. And they say Clark does it all with a sense of humor, a trait not often associated with insurance accounting professionals.

Unsung Hero

Clark progressed rapidly after joining the insurance. department as an entry-level examiner, quickly moving up the ranks as manager. Along the way, he had a hand in saving many companies from receivership. But his biggest victories, the companies the department saved from going under, he can't discuss.

"The interesting thing about working in my area is the success stories never get published," Clark said. "You attempt to work in confidence with the companies in trying to get them revived, and if it works, nobody ever knows there was a problem. The satisfaction is having it' occur. It doesn't really matter if you get the acknowledgment. The reward is in the job well done."

Often, however, when the regulators step in, the company already is too far gone to save. "In my position, we are lucky if we are able to intervene early enough to clean up the mess--to start correcting the problems, change the behavior, so. the company avoids going into conservatorship or receivership," Clark said. "If we miss that, and we do in many instances the' cleanup goes to our conservation and liquidation people, who try to 'collect all the reinsurance and maximize the value of the' assets and minimize the size of the hole. that needs to be filled by the rest of the industry--as they pay the claims through the guaranty associations."

After a rash of insolvencies in the early 1990s, the state audited the department. The auditors asked to examine the files for the roughly 15 companies that had become insolvent in the previous decade or so. They declined to look at the files of the companies that had been rescued from insolvency Clark said.

"So I said, I guess I can guess the conclusion of your report as to the efficacy of our examination, when you are looking just at our failures," Clark said with a chuckle.

One unnamed success story was--at the time--the largest medical insurer in the state. Under state standards, it was insolvent. The department kept a close watch on the company and used carefully thought-out accounting practices that allowed the company to keep its surplus up and thereby stay afloat.

"We had all the grounds in the world to put it into conservation at the time, but it survived and has flourished," Clark said. "Now it's a big holding company with some national presence, but we can't tell you the name, still. That's probably the success I look back on."

Learning From Past Mistakes

With property/casualty companies, the root of insolvency tends to be under-reserving, Clark said.

"Under-reserving is to a certain extent a result of not understanding the environment and some of the factors, but in many instances, it's also a conscious effort of management to reserve at the lowest level that they can get their experts to sign off on," Clark said. Sometimes, managers fail to see the severity of loss trends, or they acknowledge that things are bad but believe the trends will turn around. "They just keep going on as if nothing is wrong," Clark said.

Under-reserving isn't an instantaneous problem, but rather, something that builds. "When an insurance department goes in and finds a company insolvent, it just didn't happen that day. It started three or four years ago," he said.

But as much as regulators try to learn from their past mistakes, a company will "figure out some other way to go broke," he said, smiling.

He disputed the notion that bureaucrats face monotonous days.

"What most regulators find is there's a diverse number of things that you get to work on," Clark said. "If you are working at an insurance company in a financial area, you are only concerned about the financial aspects of that one company. In the department, you work with all types of companies in all types of situations, so you get this experience and variety that you would never get working for one company."

A National Role

In his work at the NAIC--attending meetings and chairing the committee that developed the Accounting Practices and Procedures Manual--Clark said he's enjoyed playing a smaller part on a larger stage.

"It may not be gigantic, but you can influence policy in more than one area," Clark said. "At the NAIC, you get to work on things that have some impact on a national basis--on the policy side--that you wouldn't get working for a company. The downside is, the pay is lousy."

It took years for the NAIC to adopt the accounting practices manual, and states still have variations from the code, although now they at least have to state how their accounting practices are different, Clark said. The process was tedious as regulators, companies and trade groups debated different aspects of the code.

D. Keith Bell, second vice president of accounting policy and finance for Travelers Property Casualty Corp., attended those meetings and said Clark would often ask insurance company representatives, "What part of 'no' don't you understand?"

"He has a very good sense of humor," Bell said. "So we found a country and western song with that same title-- What Part of No Don't You Understand?'--and had it piped into the room during a break in the hearing."

Bell and David Nachman, vice president and comptroller for Prudential Financial, gave Clark a plaque of the "10 Commandments of Codification for Norris Clark." Included in the commandments were "Thou shalt always agree with accountants, especially Keith Bell and Dave Nachman" and "Thou shalt learn the meaning of the word 'no' and all parts thereof."

"Norris is one of my favorite regulators," Nachman said. "He has a marvelous sense of humor. I have great respect for Norris. He is the most knowledgeable financial regulator around."

Clark has also worked with the NAIC to increase capital requirements and standardize accounting principles.

Clark "does so many things, and he knows so much, he is so great to work with because he has really informed views on what needs to happen and is really able to get it done," Vaughan said. "Codification wouldn't be where it is today without Norris Clark. Norris was the key driver behind codification [of statutory accounting principles]. I point to every significant solvency effort we've had, and Norris has been there."

Clark is modest about his achievements with the NAIC, and his role in implementing the accounting manual. "Hopefully, it has set the framework for putting the industry on firmer financial ground," Clark said. "We're still getting there...but overall reporting and disclosure is 10 times better now than it was 10 years ago."