Proposed change in capital rules steams California insurers.Proposed change in capital rules steams California insurers A regulatory change in what California life insurance companies are allowed to count as capital is drawing criticism from one of Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. County's largest life insurers, Transamerica Life Cos. The new rule would prohibit pro·hib·it tr.v. pro·hib·it·ed, pro·hib·it·ing, pro·hib·its 1. To forbid by authority: Smoking is prohibited in most theaters. See Synonyms at forbid. 2. companies from counting fees received from some reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. agreements - transactions allowing other insurance companies to assume some of an insurer's risk - when calculating capital. The change is described in an April 15 letter from California Department of Insurance The California Department of Insurance (CDI), established in 1868, is the angency charged with overseeing the regulation of insurance regulations, enforcing statutes mandating consumer protections, educating consumers, and fostering the stability of insurance markets in the state Commissioner John Garamendi John Raymond Garamendi (born January 24, 1945) is a U.S. politician and a member of the Democratic Party. He became the 46th Lieutenant Governor of California on January 8 2007. to 640 licensed insurance operators in the state. At issue is whether companies are signing reinsurance agreements which boost statutory capital without actually passing along risk to other insurers. The new rule would take effect at year-end and could sharply lower the reported capital of many insurers operating in the state. The Department of Insurance has issued a survey to all companies licensed in the state to find out how extensive are reinsurance contracts which lead to statutory capital gains without real assumption of risk. Transamerica Life officials, like many in the insurance industry, criticized the rule change as overly simplistic sim·plism n. The tendency to oversimplify an issue or a problem by ignoring complexities or complications. [French simplisme, from simple, simple, from Old French; see simple . "The goal of the department should be to make certain that reinsurance agreements provide for an appropriate |transfer of risk' from one insurer to another," said the statement. "Relying on labels, rather than examining the actual effect of an agreement, does not achieve this objective." Transamerica Life Vice President and Deputy General Counsel James Jackson James Jackson may refer to:
"The additional costs of other forms of insurance may cost us more but they will not be material costs," he said. Regulators reportedly decided to make the change after recently discovering that $64 million of First Capital Life Insurance's $107 million in capital at year-end came from questionable reinsurance agreements. The situation was similar at Executive Life Insurance Co., where about $165 million of the $474 million in capital at First Executive's California unit came from these transactions. Both First Capital Life and Executive Life were seized by Garamendi after their junk bond junk bond, a bond that involves greater than usual risk as an investment and pays a relatively high rate of interest, typically issued by a company lacking an established earnings history or having a questionable credit history. porfolios sagged and a wave of investors cashed in policies. |
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