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Insurance Bookkeeping to Evade Regulation

Life Insurers Increasingly Use Practices that Artificially Increase their Financial Positions

Within the last several years life insurers have been altering their books by billions of dollars, according to New York State regulators.  In a series of complex transactions, insurers have attempted to evade strict regulatory oversight in some states by setting up (and conducting business through) shell corporations in other states with looser regulations.

Insurers have been regulated by the states to ensure that they have enough funds on hand to pay their claims.  Regulations also typically spell out what insurers can do with these reserves, as well as how they can invest them.  These regulations are meant to act as a buffer against unpredicted events.

By artificially inflating their financial positions through the use of shell corporations, insurers can reap benefits, such as placing reserves in riskier investments, bloating its risk-based capital ratios (a measure of solvency), or even increasing its executive compensation and shareholder dividends.  There is a downside, however: insurers may be misreporting their strength and wealth to regulators, customers, and shareholders.  In addition, these practices create more risk for insurers, which may lead to serious consequences in the event of another financial collapse.  Customers bear a portion of this risk as well, as there is no prepaid fund to protect their claims in such an event.

Evans Law Firm, Inc. advocates for victims of insurance fraud.  If you believe you have witnessed fraud, contact Evans Law Firm, Inc. at (415) 441-8669 or info@evanslaw.com for a free and confidential consultation.

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